The Credit Card Minimum Payment Trap
Credit card companies want you to pay the minimum. It is their most profitable scenario.
The "Minimum Payment" is designed to be just enough to cover the interest and a tiny fraction of your principal. This ensures you stay in debt for as long as possible—sometimes decades—while paying double or triple what you originally borrowed.
The Math: Why It Takes Forever
Let's say you have $5,000 in debt on a card with 20% APR.
Your minimum payment is calculated as Interest + 1% of Balance.
- Interest for Month 1: ~$83
- 1% of Balance: $50
- Total Payment: $133
You pay $133, but only $50 goes toward reducing your $5,000 debt. The rest vanishes into the bank's profit.
The Trap in Action
If you ONLY pay the minimum on that $5,000 debt:
You will pay over $12,800 for a $5,000 purchase.
How to Escape
The good news is that math works both ways. Small increases in your payment have massive effects.
If you pay a fixed $200 per month instead of the minimum:
- Time to Pay Off: Under 3 Years (vs 22 years)
- Total Interest: ~$1,500 (vs $7,800)
See Your Debt-Free Date
Use our calculator to see how much faster you can be free:
Strategies to Pay Faster
- The Avalanche Method: Pay minimums on all cards, but throw all extra money at the card with the highest interest rate. This saves the most money.
- The Snowball Method: Pay off the smallest balance first to get a quick "win," then move to the next smallest. This builds motivation.
- Balance Transfer: Move high-interest debt to a 0% APR card (for 12-18 months) so 100% of your payment goes to principal.