All You Need to Know About Credit Card Minimum Payments

By Ashley Kilroy · March 24, 2022 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

All You Need to Know About Credit Card Minimum Payments

It may be tempting to just make the minimum payment on your credit card and put off paying the total bill amount until another time. But, only making your credit card minimum payment can cost you both in interest and when it comes to your credit score. Plus, it will keep you in debt longer.

To avoid this predicament, here’s what you need to know about minimum credit card payments, as well as what you can do if making the minimum payment on your credit card is a challenge.

What Is a Credit Card Minimum Payment?

A credit card minimum payment is the lowest sum that you’re required to pay each credit card billing cycle. To avoid late fees or penalties, you must pay at least this amount. If you don’t make the minimum payment amount, you could be charged a fee or, worse, your interest rate could increase, which is why it’s critical to understand this part of how credit cards work.

Creditors determine your minimum payment by using one of three different methods, which include:

•   A flat percentage of your total outstanding balance: Your minimum payment might be 1% to 3% of your balance. Thus, your minimum credit card payment will fluctuate monthly depending on your credit card balance at the time.

•   A percentage of your balance plus fees or interest that’s applied during that billing cycle: With this method, the credit card company may make your minimum payment equal to 1% of your revolving balance and then add any fees or the annual percentage rate (APR) charged within that billing cycle.

•   A flat rate: A creditor may apply a flat rate, perhaps $25 or $35, for your minimum payment.

Keep in mind that if your revolving balance is less than the minimum payment, your creditor will typically require you to pay the total amount. Because minimum credit card payment guidelines differ from creditor to creditor, you’ll want to get familiar with your credit card payment rules — ideally before you even apply for a credit card.

Cash in on up to $300–and 3% cash back for 365 days.¹

Apply and get approved for the SoFi Credit Card. Then open a bank account with qualifying direct deposits. Some things are just better together.


How Does a Minimum Payment Affect Your Credit Score?

Not only does paying the minimum payment on your credit card increase the amount you pay in interest, but it can also impact your credit score.

One of the factors that credit bureaus use to determine your credit score is your credit utilization ratio, which is the percentage of credit you’re using versus the amount you have available. A good rule of thumb is to keep your credit utilization ratio below 30% so your credit won’t be affected.

For example, let’s suppose you have $15,000 of available credit. If your revolving credit card balance is $7,500 racked up from places that accept credit card payments. That means your credit utilization ratio is 50%, which exceeds the 30% threshold. If you’re only making the minimum credit card payments, your credit utilization ratio will stay beyond an acceptable rate for a more extended amount of time. Therefore, your credit score may dip.

To avoid this scenario, it’s wise to make more than the monthly minimum payment so you keep your credit utilization low. This is especially important if you have a limit that’s below the average credit card limit, as it will be easier for your credit utilization ratio to jump.

What to Do If You Cannot Afford Your Minimum Payment

Although you want to make more than your minimum credit card payment each month, you may find yourself in a situation where you can’t afford to do so. Fortunately, there are steps you can take to ease this financial burden.

Stop Using Your Credit Card

If you’re trying to repay your credit card debt, it’s best not to add to it. This means that while you’re working to pay down your credit card balance, you should consider putting your credit card use on pause. If you continue to use your credit cards, you may feel like you’re never getting ahead. This can become a vicious debt cycle that can be challenging to break.

You can pause your use by putting your credit cards in a safe place where you don’t have access to them but also don’t risk them getting stolen. For example, you could put them in your family’s safe. This way, you can avoid the temptation of impulse buys.

Also, you may find it helpful to track your spending. This will allow you to see where your money is going and get a better handle on what costs might be busting your budget.

Reduce the Cost of Your Bills

Looking for ways to cut your expenses can free up extra cash to help you make your credit card minimum payments. Start by identifying subscription services you’re not using, or consider putting a gym membership on hold until your credit card balance is repaid.

For example, if you have cable, Netflix, Amazon Prime, and Hulu, you may want to choose just one or two of these services to keep. Then, you can cancel the other subscriptions that you don’t need, saving you money and making it easier to meet your minimum payment on your credit card.

Consider Getting a Side Job to Earn Extra Income

Increasing the amount of money you have coming in also can help you accelerate your credit card debt repayment. Even bringing home an extra couple hundred dollars per month could help you make a significant dent in your credit card debt.

For example, if you’re handy, you could sign up for a service like TaskRabbit to help people tackle projects around their homes. Or, if you like to interact with a variety of people, you could consider driving for a ride-share service like Uber or Lyft.

Also, if you receive extra money from a work bonus, tax return, or a gift, you could put these funds to good use by making a larger credit card payment.

Call The Credit Card Company

In some cases, you may want to contact your credit card company if you cannot make the credit card minimum payment. You’ll want to explain why you can’t make the minimum payment and how much you can afford to pay.

Also, share with your credit card company when you can begin making regular payments again. Your credit card company would rather receive payment than no payment. So, by communicating with them, they might be willing to work with you while you repay your debt.

Explore Get-Out-Of-Debt Options

There are other options to help you get out of your credit card debt. For starters, debt consolidation is a get-out-of-debt strategy that can help you minimize your interest payments, helping you to repay your debt faster. With debt consolidation, you take out a loan with a fixed interest rate that you use to repay all of your other high-interest debts. Ideally, you want to find a financing option that can yield a lower interest rate.

How Paying Only the Credit Card Minimum Payment Costs You More

As you now know, it’s essential to make at least the credit card minimum payment. But making only the minimum payments each month can end up costing you more — even if you have a good APR for a credit card. When you carry a monthly credit card balance, the interest continues to accrue, which can keep you in a debt cycle.

To illustrate the cost of paying the minimum payment on the credit card only, let’s suppose your credit card has a 17% interest rate and you have a $3,000 revolving balance. If your credit card company has a $50 minimum payment requirement, it will take you 135 months to repay your debt. Additionally, you’ll end up paying roughly $3,743 in interest alone. This means you’ll spend a total of close to $7,000 to pay off a $3,000 bill.

Luckily, you don’t have to do all of this math yourself if you’re wondering how your credit card payments will impact the total amount you owe. Per the Credit CARD Act of 2009 , credit card companies are required to put a minimum balance warning on each bill you receive to protect your interests.

Usually, credit card companies will communicate this warning with a table that provides a snapshot of the amount of time it will take to repay your balance if you only make the minimum payment. In some cases, the company may also provide a table that suggests the amount of time it will take to repay your debt if you make more than the minimum payment.

The Takeaway

If you want to avoid costly interest or a dip in your credit score, it’s wise to make more than your credit card minimum payment each month. An even better solution (if you can afford to do so) is to pay off your total credit card balance every month. This way, you can dodge high interest payments and keep your credit utilization ratio at a favorable rate.

And, if you’re in the market for a new credit card option to help you achieve your financial goals, a credit card from SoFi is worth considering. SoFi credit cards have no foreign transaction fees, and they offer ID theft protection and the chance to earn cash back rewards.

FAQ

What are your minimum payment rights?

As part of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, creditors are legally required to illustrate how long it will take you to repay your debt if you make only the minimum payment. Also, they must provide a toll-free number that cardholders can call to get assistance with credit counseling or debt management. These requirements are designed to keep credit practices fair.

Does paying minimum due affect your credit score?

Yes, making a minimum payment can affect your credit score since it impacts your credit utilization ratio, a factor used to calculate your credit score. Credit utilization ratio is the percentage of credit you’ve used versus the amount you have available. So, if you continue to carry a high balance on your credit card, your credit utilization rate may be higher than recommended, which can impact your credit score.

What happens if I don’t pay my credit card for 5 years?

After just six months if you don’t pay your credit card, the credit card company is required to charge-off the account. This means they will close your account and write it off as a loss. However, you will still be responsible for repaying the outstanding balance either to your creditor or a third-party collections company.


Photo credit: iStock/MStudioImages

You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: 4/18/2022-6/30/2022

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

New SoFi Checking and Savings customers and existing Checking and Savings customers without direct deposit are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 30-day period. Cash bonus will be based on the total amount of direct deposit. Entry into the Program will be available 4/5/22 to 5/31/22. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances. There is no minimum direct deposit amount required to qualify. Members without direct deposit will earn 0.70% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 04/05/22. Additional information at http://www.sofi.com/legal/banking-rate-sheet.


1See Rewards Details at SoFi.com/card/rewards.
SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.1
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SOCC0222012

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender