Home › Glossary › Minimum Payment
The minimum payment on a credit card is the smallest amount you must pay each month to avoid late fees. Paying only the minimum traps borrowers in long-term debt.
Minimum payments are designed to maximize the issuer's interest revenue while keeping the account current. Paying only the minimum on a typical credit card balance can result in a payoff timeline of 15-25+ years and total interest payments that exceed the original balance. The federal CARD Act of 2009 requires credit card statements to show how long minimum-payment payoff would take and the total interest cost — read those boxes on your statement.
A $5,000 balance at 22% APR with a 2% minimum payment ($100/month initially) takes approximately 25+ years to pay off and costs roughly $7,000+ in interest if only minimums are paid. The same balance with $200/month payments pays off in about 33 months at ~$1,500 interest cost. Doubling the minimum cuts payoff time to about 1/9 the duration.
Why minimums exist: Issuers profit from carried balances. Minimums are calibrated to prevent default while maximizing carried interest. The minimum payment trap: As balance decreases, minimum decreases proportionally — extending payoff. Paying a flat amount above the minimum (e.g., always paying $300/month even as the minimum drops) breaks the trap.