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How does a credit card minimum payment work?

A credit card with an arrow pointing to a payment bar split into a large coral part marked with a triangle and a small teal part marked with a check, beside a row of balance bars that get only a little shorter each step.

The Minimum Payment Due line is the smallest number on the statement, and it's often the one that gets paid. By the end of this post you can find the formula behind that number for your own card and work it out by hand. You can also say where the payment goes, and see what paying only the minimum does to a balance over time.

It's trickier than it looks. The formula lives in your card agreement, away from the statement. Part of it is the month's interest. And the number gets a little smaller each time the balance does, which is why it can feel like progress while the balance barely moves.

1. Find your card's formula

Each card's minimum comes from its own formula, set out in the cardholder agreement. The CFPB says you can get your agreement from the card issuer's website or by calling the issuer. You may also find it in the CFPB's Credit Card Agreement Database.

Regulation Z's commentary gives one example of what a formula can look like. The example agreement sets the minimum at "the total of fees and interest charges plus 1% of the total amount owed or $20 (whichever is greater)." That example has three parts:

  • The month's interest and fees. These are covered first.
  • A slice of the balance. Here it's 1% of what you owe. That slice is what pays the balance down.
  • A floor. Here it's $20. When the first two parts add up to less, the floor applies.

Your card's percentage and floor can differ, and a formula can be built another way. The agreement is where yours is written down.

2. Work out this month's number

Say you owe $3,000 on a card at 22% APR, with no fees this month, and the card uses the formula from the example above.

  • The month's interest is about $55 ($3,000 x 0.22 / 12).
  • 1% of the balance is $30.
  • Together that's $85, which is more than the $20 floor, so the minimum is $85.

Of that $85, about $55 covers interest and $30 pays down the balance. Next month the balance is $2,970. The interest is about $54.45 and 1% is $29.70, so the minimum is $84.15. It shrinks a little each month because the balance does.

The floor matters when the balance is small. On a $500 balance at the same rate, interest is about $9.17 and 1% is $5. That adds up to $14.17, so the $20 floor applies.

A card agreement can also add a past-due amount or a fee to the minimum. The Minimum Payment Due on your statement is the amount your card asks for. How to read your credit card statement shows where that line sits.

3. See where the payment goes

If your card carries more than one rate (say, purchases at one APR and a cash advance at a higher one), the payment gets split across those balances. Two rules decide how.

  • The part above the minimum goes to the balance with the highest APR first. The CFPB says the issuer generally applies the amount you pay over the minimum to the balance with the highest interest rate first. The rest goes to the other balances, from highest rate to lowest. The rule itself is 12 CFR 1026.53.
  • The minimum itself is up to the issuer. The CFPB says it's generally up to the card issuer to decide which balance the minimum goes to. It can go to a lower-rate balance.

So with balances at two rates, a payment of exactly the minimum can leave the higher-rate balance untouched. Any amount above the minimum goes to the higher-rate balance first. Deferred-interest promotions have a special case in the same rule: in the last two billing cycles before the promotion ends, the extra goes to that balance first.

4. Tell the minimum from the statement balance

These are two different numbers on the same statement.

The statement balance is what you owed on the closing date of the billing cycle, a figure Regulation Z requires the statement to show. The minimum is the smallest payment the issuer asks for by the due date.

They do different jobs. Paying at least the minimum on time keeps a late fee off the account. A late fee can't be more than the minimum payment that was due. Paying the full balance by the due date is what can avoid interest on purchases, if your card has a grace period. The CFPB explains that a grace period is the time between the end of a billing cycle and the payment due date. If a payment does arrive late, What happens if you miss a credit card payment walks through each thing that can follow.

5. See what paying only the minimum does

Back to the example: $3,000 at 22% APR, with the minimum set at interest plus 1%, or $20. Here's what two ways of paying look like, worked out month by month with the APR divided by 12 and no new charges.

  • Paying only the minimum each month. The payment starts at $85 and shrinks as the balance does. Paying off takes about 202 months, close to 17 years, with about $4,646 in interest.
  • Paying $85 every month. That's the first month's minimum, held steady. Paying off takes about 58 months, a little under 5 years, with about $1,873 in interest.

The difference comes from step 2. With the minimum, the slice that pays the balance down is 1% of whatever you owe, so it gets smaller each month. With a steady $85, every dollar the interest no longer needs goes to the balance.

These are estimates. The CFPB says many card companies calculate interest daily, so a real card's numbers can come out a little different. To run the same kind of estimate with your own balance and payment, see How long will it take to pay off your credit card?

Your statement runs its own version. Regulation Z has the minimum payment warning box say how long paying only the minimum would take and what it would cost in total. When the minimum is less than the interest charged, the box says you "will never pay off the balance shown on this statement because your payment will be less than the interest charged each month."

What you pay each month is your call. The CFPB puts it this way in its answer about the payoff box: "You do not have to pay any more than the minimum amount shown on your statement. However, the more you pay each month, the less interest you will pay over time."

Nice work. You can now find the formula, work out the number, and see where the payment goes and what it does over time.

Where Unspending Spree fits

Unspending Spree shows credit cards, loans, and balances in one place, with interest rates, minimum payments, and estimated payoff dates tracked without logging into multiple sites. We estimate when you could be debt-free from the plan you set, and show how a bigger payment moves the date. Calculations are estimates based on your data and current rates. Not financial advice.