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How are credit card minimum payments calculated?
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When it comes to your overall financial health, credit cards can act as both a valuable tool and a potential pitfall. They offer convenience, rewards and the ability to manage cash flow effectively. However, the allure of buying something now and paying for it over time can lead to mounting debt and financial stress. Part of the risk is that you don’t have to pay off what you owe each month, and can instead opt to pay less or just make minimum payments — which is the smallest amount required each month to keep the account in good standing.
For millions of Americans, the minimum payment amount shown on their monthly credit card statement represents a tempting escape route from looming financial pressure. The minimum payment is often a surprisingly small number, perhaps just $25 or $35 on a balance of several thousand dollars. This seemingly manageable amount can provide immediate relief when you’re cash-strapped, helping you avoid late fees and credit score damage in the short term, but it masks a troubling reality about the long-term costs of carrying credit card debt.
So, if you’re using credit cards regularly or even occasionally, it’s important to know how your credit card minimum payments are calculated. By understanding the mechanics of minimum payments, you can ensure that your credit cards are working for you — and that you’re avoiding expensive debt traps that could cause big trouble over time.
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How are credit card minimum payments calculated?
Credit card issuers typically calculate minimum payments using one of several standard formulas, though the specific approach can vary by issuer and card type. Most commonly, though, the minimum payment is determined by taking the greater of:
- A fixed percentage (usually 1% to 3%) of the card’s balance, plus any accrued interest and fees
- A fixed dollar amount (typically $25 to $35)
For example, if your card issuer requires a minimum payment of 2% of the balance or $25 (whichever is greater), and you have a $2,000 balance, your minimum payment would be $40 (2% of $2,000). However, if your balance were only $1,000, your minimum payment would still be $25, as that’s greater than 2% of the balance ($20).
That said, some credit card issuers use more complex formulas to determine your minimum payments. For instance, they might calculate the minimum as 1% of the principal balance plus 100% of the interest charges and fees. Others may use a sliding scale, where the percentage increases as the balance grows. In particular, premium cards and cards designed for customers with lower credit scores might have higher minimum payment requirements to offset the increased risk to the issuer.
It’s important to note that these calculations typically exclude any amount by which you’ve exceeded your credit limit. Over-limit amounts usually must be paid in addition to the regular minimum payment. If you’ve missed previous payments, the issuer may also require you to pay those past-due amounts plus the current minimum payment to bring your account current.
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What happens if I only make minimum payments on my credit card?
While making minimum payments keeps your account in good standing and prevents late fees, it can lead to several long-term financial consequences. Here’s what you need to consider if you plan to take this route:
- The extended repayment period: When you pay only the minimum, the majority of your payment goes toward interest, leaving only a small portion to reduce the principal balance. This can significantly extend the time it takes to pay off your debt.
- Higher interest costs: Credit card interest rates are notoriously high, with the average rate now hovering above 23%. Interest accrues daily, so the longer you carry a balance, the more interest you’ll pay. Over time, the total cost of your purchases can double or even triple based on just the interest charges.
- Impact on credit utilization: Making minimum payments means your outstanding balance remains high, which can negatively affect your credit utilization ratio. This ratio, which is the percentage of your credit limit that you’re using, is a key factor in your credit score. A high utilization rate can lower your score, making it harder to secure favorable terms on future loans or credit cards.
- Debt accumulation: If you continue to use your credit card while making only minimum payments, your debt can grow quickly. Each new charge adds to your balance, and with interest compounding monthly, the total debt can become overwhelming.
It’s also worth noting that relying on minimum payments can leave you vulnerable to financial emergencies. If most of your available credit is tied up in existing balances, you have less flexibility to handle unexpected expenses. This can lead to a cycle where you’re forced to rely on additional credit cards or other high-rate loans to cover emergencies, deepening your debt burden.
The bottom line
The minimum payments on your credit card are designed to maximize profits for credit card companies, not to optimize your financial health. The best way to view minimum payments is exactly as they are — a minimum requirement, not a recommended payment strategy. By understanding how these payments work and implementing a strategy to pay more than the minimum, whether that’s through a tried and true strategy like debt snowballing or by taking advantage of one of your debt relief options, you can take control of your credit card debt and work toward a more secure financial future.
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Sean “Diddy” Combs will remain in New York City jail until 2025 trial after withdrawing bail appeal
NEW YORK — Sean “Diddy” Combs filed a motion Friday to dismiss his appeal for bail, meaning he will stay in jail until his trial on sex trafficking charges in May 2025.
Combs was ordered held without bail when he was first arrested back in September, but his legal team appealed the decision multiple times.
When the most recent appeal was denied in late November, the judge said, “The Court finds that the government has shown by clear and convincing evidence that no condition or combination of conditions will reasonably assure the safety of the community.”
Prosecutors previously alleged that since his arrest, Combs has tried to reach out to potential victims and witnesses. They also claim he encouraged strategies to sway public opinion, such as having his children post about his birthday on social media.
Combs held at federal jail in Brooklyn
Combs, 55, has pleaded not guilty to charges of sex trafficking, racketeering conspiracy and transportation to engage in prostitution. He is accused of abusing and blackmailing multiple women with the help of associates and employees for over 15 years.
He is being held at the Metropolitan Detention Center in Brooklyn, the only federal jail in New York City. Over the years, the jail has held other high-profile inmates, such as singer R. Kelly, rapper Ja Rule and cryptocurrency mogul Sam Bankman-Fried.
Combs’ trial is scheduled to begin May 5, 2025. Prosecutors have until the end of this year to turn over discovery.
If convicted of the charges, Combs could face decades in prison, experts say.
Senate Republican Leader Mitch McConnell issued an apparent warning Friday to Robert F. Kennedy, President-elect Donald Trump’s pick to lead the Health and Human Services Department, after The New York Times reported that one of Kennedy’s top advisers had filed petitions to revoke the approval of a polio vaccine and several other shots.
“Anyone seeking the Senate’s consent to serve in the incoming Administration would do well to steer clear of even the appearance of association with such efforts,” McConnell said in a statement.
McConnell, a polio survivor, denounced efforts “to undermine public confidence in proven cures” like the polio vaccine.
“The polio vaccine has saved millions of lives and held out the promise of eradicating a terrible disease. Efforts to undermine public confidence in proven cures are not just uninformed — they’re dangerous,” McConnell said.
McConnell credited the “miraculous combination of modern medicine and a mother’s love” with saving him from paralysis when he contracted the disease at two years of age, and he praised the “miracle” of “the saving power of the polio vaccine” for the millions of children who came after him.
The Times article focused in large part on the work of attorney Aaron Siri for the nonprofit Informed Consent Action Network, or ICAN, which petitioned the Food and Drug Administration in 2022 “demanding that the FDA suspend or withdraw approval” of Sanofi Pasteur’s inactivated polio vaccine, called IPOL.
Siri has been acting as an adviser to the transition team for Kennedy, who, if confirmed by the Senate, would oversee the FDA and the nation’s other public health agencies.
Siri called the Times article a “hit piece” that did not engage with the substance of the “legitimate” concern at the center of the petition he filed for ICAN.
“ICAN’s petition, filed in 2022, makes the reasonable request that the FDA, as required by federal law, require a proper clinical trial for IPOL prior to licensure,” Siri posted on X.
The Times report on Siri’s work sparked a renewed round of backlash against Kennedy by Democrats, too, who have criticized Trump for months over his ties with Kennedy.
As HHS secretary, Kennedy would have significant direct authority as the nation’s health secretary over how vaccines are studied, approved and recommended in the U.S. He and his FDA commissioner would also oversee how government lawyers respond to many of the legal battles Siri has launched against the agency over vaccines.
Kennedy himself has said he would not ban vaccines and has tried to distance himself from the “anti-vaccine” label, instead calling for further study of the shots. He recently resigned as chair of Children’s Health Defense, a nonprofit that watchdog groups have found for years to be spreading misinformation over fears about vaccines.
President-elect Donald Trump has said he might be open to getting rid of some vaccines “if I think it’s dangerous,” pledging to listen to Kennedy.
“We’re going to have a big discussion. The autism rate is at a level that nobody ever believed possible. If you look at things that are happening, there’s something causing it,” Trump said in an interview with Time magazine published this week, when he was asked if he’d sign off on a move by Kennedy to end childhood vaccination programs.
Extensive medical research has conclusively shown that vaccines do not cause autism.
Siri’s petition for ICAN has not progressed much at the FDA since it was filed in 2022. It is one of several legal efforts Siri has filed for groups against several shots, including a petition in 2020 over hepatitis B vaccines.
In a 2023 letter responding to the polio petition, the agency’s top vaccine official, Dr. Peter Marks, wrote that the FDA “has been unable to reach a decision on your petition because it raises issues requiring further review and analysis by agency officials.”
Siri’s petition targets IPOL, which is the only “single-antigen” polio vaccine currently recommended for use in the U.S. The vaccine was approved in the 1990s.
Many children who receive immunizations for polio often do not receive IPOL, but rather, one of several combination vaccines that blend a harmless version of the poliovirus with other recommended antigens for various vaccine-preventable diseases.
The CDC says IPOL is “mainly used as a travel vaccine for adults.” The agency says that the “body of scientific evidence overwhelmingly supports” the safety of polio vaccines.
Siri has hinted at plans for more petitions to the FDA, after Kennedy is in charge at HHS.
“It will help if there are outsiders, from the outside attacking in. For example, the FDA acts on petitions. If you want to license a product, you have to petition them. If you want a product to be withdrawn or reevaluated, you typically often have to petition them,” Siri told Del Bigtree, ICAN’s founder and a former campaign spokesperson for Kennedy, on his podcast last month.
“Somebody on the outside needs to be petitioning them,” Siri added.
contributed to this report.
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