Credit Card Minimum Payment Calculator
This credit card minimum payment calculator figures how much interest you will end up paying and how long it will take to pay off your credit cards if you make only the minimum required payment. There are a couple of key points to keep in mind...
If you're not sure what your minimum payment is just check the credit card disclosure statement and there should be language similar to "your minimum payment will be 2% of the balance or $10, whichever is higher."
Paying Minimum Amount Due In Credit Cards
Every credit card bill you receive will show you the total amount you owe on your credit card, and the minimum amount due. The bank will offer you two choices – either you pay the full amount, or pay only the required minimum amount before due date. Obviously, you can always pay any amount in between. If you fail to pay at least the minimum amount due, you will be charged with penalty and late payment fees.
Paying only the minimum payment due is like running on a thread mill that goes nowhere. It will have a significant impact in your monthly budget. The minimum payment calculator above will show you how much interest you will end up paying if you only make the minimum required payment on your credit card bill — that is, granting you stop charging any more to it.
How Are Payments Applied
If you are wondering why paying the minimum amount due on your credit card bill does not reduce the outstanding balance, it is because banks practices different ways of applying the payment. Each time you make a minimum payment, almost all goes to pay the interest incurred and only a tiny fraction goes to pay the purchases you charged. Aside from that, any amount you pay over the minimum payment due is applied to the balance with the highest annual percentage rate and then to balances with lower annual percentage rates. This means that if you are taking cash advances from your credit card, it will only be cleared after you pay off your regular purchases, since it bears a higher annual percentage rate. Making the minimum payments will ultimately result in paying triple or quadruple the original borrowed amount. Credit cardholders who pay the minimum payment on their credit card bill has a greater chance that they will never pay off the balance.
Avoid The Trap Of Minimum Payments
Most people who are paying minimum payments don’t necessarily mean they are in financial difficulty. Sometimes, they just don’t realize how critical it is to their budget.
There are a number of ways you can do to eliminate credit card balances. First, you must stop using your credit card. If you are just paying the minimum and you are also putting additional purchases, you are going backwards fast and will just go deeper into debt.
Second, start making payments more than the minimum amount due. While it is applicable in some cases where the interest rate is at zero for a promotion, it is best to have a habit of paying more than the minimum charges. You will be surprised how fast your credit card balances reduce once you start paying more than the minimum payment. Stick to the higher payment you choose. The amount you repay must be fixed until you clear the debt in whole without decreasing the repayment amount each month until you clear the debt.
Lastly, try reducing your annual interest rates by transferring your balance to other credit card companies that offers zero percent transfer rates or ask your credit card company for flexible payment schemes. The most important thing one need to understand with regard to credit card debt is the higher the interest is charged and the minimum you pay, the more it will cost you.
In A Nutshell
Unless you pay your credit card balance in full each month, credit cards are generally a poor funding choice. Always try to pay more your balances whenever you can. The faster you pay down your balance and the more you pay, the less it costs.
Definition Of Terms
Other Personal Finance Calculators: