How this number is made
A minimum payment that is a small percent of the balance shrinks as the balance shrinks, so most of each early payment is interest. A fixed payment does the opposite: it stays large relative to the balance and the payoff date moves up.
- Use the statement APR and the current balance. Do not include cards you are not modeling.
- For a minimum, use the percent in the agreement and the dollar floor, often $25 to $40.
- Switch to a fixed amount to see what a chosen payment does. The loan-payoff page is the same idea for an installment loan.
Formula
Interest this month = balance × APR ÷ 12. A percent minimum pays the greater of the dollar floor and (percent × balance), after interest. A fixed payment is the same amortization as any installment loan.
Worked example
A $4,200 balance at 21.9% with a minimum of 3% or $40, whichever is greater, takes 12 years and 5 months. Interest is about $5,192. The dollar floor only starts to bind once the balance is small.
Questions
Why does a 2% minimum take so long?
Two percent of the balance is often only a little more than that month’s interest. The principal barely moves, and next month’s minimum is smaller still.
Does paying the minimum protect my credit?
It can keep the account current. It does not mean the balance is a good price. This page does not know your credit report.