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Understanding Minimum Payments on Credit Cards

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best financial decisions. For any mortgage-related needs, feel free to call us at 213-732-3074.

What Is a Minimum Payment on a Credit Card?

A minimum payment is the smallest amount you can pay a credit card issuer to keep your account in good standing. While minimum payments can offer some financial relief during tough months, they are not typically an effective way to eliminate credit card debt. Automating at least the minimum payment can help you avoid late fees.

How Do You Find Your Minimum Payment?

Your minimum payment is listed at the top or on the first page of your credit card statement under “Payment Information.” This section also shows how long it would take to pay off your current balance if you only make minimum payments and do not add new charges.

How Are Minimum Payments Calculated?

Credit card issuers use different methods to calculate minimum payments. Two common methods are:

• A flat percentage of the balance owed, usually between 2% and 4%
• A percentage (typically 1%) plus interest and fees for the billing period

If your balance is below a certain required minimum, such as $25 or $35, the payment may be due in full.

5 Reasons Your Minimum Payment Can Go Up

Your minimum payment can increase for several reasons:

1. Missed Payment: Missing a payment due date can result in late fees, a penalty interest rate, and a negative impact on your credit score.
2. Late Payment: Even if you pay within 30 days of the due date, you might incur a late fee and a penalty interest rate. It’s best to pay as soon as possible and contact the card issuer to potentially waive the fee.
3. Increased Debt: If your total balance increases month over month, your minimum payment may also increase.
4. Special Financing: If you take advantage of interest-free payments over time, these payments will be added to your regular minimum payment.
5. Cash Advances: Cash advances come with fees and higher interest rates, which can increase your minimum payment.

The Bottom Line

If your credit card statement balance changes, your minimum payment might change as well. It’s crucial to pay at least the minimum payment to keep your account in good standing. Paying more than the minimum will help you pay off debt more quickly. If you need to carry a balance, consider finding a credit card with the lowest interest rate you qualify for, possibly even one with an introductory 0% rate.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make informed financial decisions.

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