In the age of cash-less stores and online-only shops, having a credit card is more essential than ever. That said, the ease and accessibility of using credit (including through your smart watch which makes it easier than ever to pay with your credit card) can easily lead to stifling credit card debt. While credit card companies only ask for a small amount of your total debt each month as a minimum payment, paying only the minimum required amount can be a trap, ensuring you remain in debt for longer.
Understanding how your monthly minimum credit card payments work is the key to maintaining a good credit score and will set you up for the future. Alternately, missing a few monthly payments or strictly paying the minimum amount due each month will result in you paying much more money over time for your same initial purchases and can drastically lower your credit score, affecting your ability to buy a car or a home in the future.
A credit card minimum payment is the amount established by your bank or credit provider as the bare minimum amount you will have to pay to avoid late fees or additional charges. Generally, the minimum amount billed is a percentage of the amount of you owe, ranging from 1-3% depending on your bank and the type of card you have. If you’ve missed one or more monthly deadlines, the bank will also add on late fees and interest on the amount owed.
In order to avoid paying extra fees, you must make the minimum payment before the due date. This is the date specified in your monthly statement.