Video: 3 things to know about credit card minimum payments
By Kristin Wong
If you have a credit card, you're obliged to make at least a minimum payment every month. It sounds simple enough, but there are three important things to know about it.
1. What is a minimum payment? It’s pretty much what it sounds like: the smallest amount you can pay each month on your debt without incurring a late fee. Late fees are never good.
2. How is your minimum payment calculated? In fancy terms, it’s usually either a percentage of your total current balance, or all of the interest you owe, plus 1 percent of the principal. Issuers also set a floor for minimum payments -- a fixed dollar amount that the minimum payment won't fall below.
Confusing, I know. The important thing is, the lower your balance, the lower your minimum payment.
3. Know that paying only the minimum will cost you over time. You might not incur late fees, but you will incur interest. And the longer you take to pay off the debt, the more interest you pay. Thanks to compounding interest, you will end up paying down your debt for a long, long time if you only pay the minimum.
Minimum payments? Simple enough. But the more you know about them, the better you’ll be at tackling that debt.
Published: April 18, 2016
- Video: What is Creditcards.com? – Creditcards.com saves you the hassle of applying for cards that end up not being right for you. Learn how to use our card comparison tool to make the right decisions ...
- Video: 4 ways to finance an engagement ring – Before spending a huge amount of money on a ring, be sure you are making the best financial choice ...
- Video: How a side hustle can help you pay down debt – Side hustles can help you pay down debt quickly, but you should know what to avoid when taking on certain jobs ...