Your credit card minimum payment is the amount that you must pay to keep your account in good standing.
Wondering how your credit card's minimum payment is determined? It's not an arbitrary figure. Your minimum payment is often set at $10 plus outstanding interest and fees, but it may also be a percentage of your outstanding balance. Check your cardholder agreement to see exactly how your payment is calculated.
If you fail to make the minimum payment on time, you might be hit with a late fee, so it's important to learn what payment is expected and when.
Key Takeaways
- You must pay at least the minimum payment amount noted on your credit card statement each month to avoid hurting your credit score.
- Paying only the minimum payment won’t help pay off your balance and will result in interest accrual.
- It’s always best to pay more than your minimum payment – and consider a balance transfer credit card if you have credit card debt.
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What is a credit card minimum payment?
The minimum payment noted on your monthly credit card statement is the amount that you must pay that month. It's typically one of 2 numbers: a flat rate plus any interest and fees, or the higher of a specific dollar amount (typically $10) or a percentage of your total balance (typically 3%).
If you're a Quebec resident, expect to pay at least 5% your outstanding balance.
Remember: If you don't make your minimum payment on time, your credit card issuer could charge late fees or increase your credit card interest rate. Your credit score could also take a hit.
How is your credit card minimum payment calculated?
Your minimum payment is typically calculated as either $10 plus any outstanding interest and fees, or a percentage of your balance – depending on your bank and province.
- Flat rate: Your minimum payment may be a flat amount (e.g., $10) due every month. If your balance is less than the minimum amount, you must pay off the entire outstanding balance.
- Flat rate + interest and fees: Many credit card issuers require cardholders to pay this set amount plus any accrued interest and/or fees.
- Percentage of your balance: Some credit card companies use a percentage of your statement balance instead of a flat rate. You may also have interest and fees added to this number.
How do you estimate your minimum credit card payment?
Once you know how your card issuer determines your monthly payment, you can head to the Government of Canada's credit card payment calculator and enter your balance. Select your card's interest rate and hit the calculate button at the bottom.
- Flat rate + interest and fees: To predict your minimum payment, add the base payment (typically $10) to any interest and fees. For example, you might incur an overlimit fee if your balance goes over your credit limit. In that case, your calculations could look something like this:
$10 base minimum payment + $29 overlimit fee = $39
- Percentage of your balance: Usually, issuers charge between 2% and 5%, so if you have a $2,000 balance and the issuer uses a 3% flat percentage, your minimum payment would be $60.
Here's what happens if you only make the minimum payment
If you make only the minimum payment each month, interest will continue to accrue, and your credit card balance will continue to climb. You'll also see your minimum payment start increasing since it is a flat rate or percentage plus interest and fees.
Let's look at an example: Suppose you have $4,000 of debt on a credit card with a common 20.99% interest rate. Your minimum payment is 3% of the balance. We used the same government calculator to play out the different scenarios based on various monthly payments.
| Minimum payment | Minimum plus $50 | Fixed $250 | |
|---|---|---|---|
| Time to pay off balance | 20 years, 8 months | 4 years, 7 months | 1 year, 7 months |
| Interest paid | $5,299 | $1,741 | $734 |
| Total paid | $9,299 | $5,741 | $4,734 |
Our advice? You should always pay more than the minimum each month. Not only will you repay your debt faster, but you'll pay less in interest and improve your credit score. A higher credit score can help you qualify for credit cards, personal loans, and mortgages with the best terms.
Tips to pay off your credit card debt faster
If you're carrying credit card debt and want to get a jump on paying it off, here are 3 practical tips to help you clear your balance quicker.
1. Set up automatic payments
Set up autopay so that each time you receive a paycheque, a certain amount goes directly to your credit card. This payment becomes part of your budget rather than something "extra" to throw at your card if you have some cash leftover each month.
2. Make small payments regularly
Instead of making one larger payment each month, make smaller weekly or biweekly payments. Since interest is based on the average daily balance of your card, these payments will reduce that number and minimize the interest you're paying.
3. Get a balance transfer credit card
A balance transfer credit card gives you a promotional interest rate of 0% for a certain period, allowing you to pay off your debt faster without excess interest piling up. Prioritize credit card payments during the promotional rate period so you can knock out your debt.
The MBNA True Line® Mastercard® is one of the best credit cards for balance transfers. It offers a 0% promotional balance transfer rate for the first 12 months (3% fee) and a low regular purchase and balance transfer interest rate of 12.99%. Plus, there's no annual fee.
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2x Award winner 4. Stop using your credit card
This one can be challenging, but hear us out. You're working against yourself if you're charging purchases while trying to pay down a big balance. To get rid of the debt, give yourself a cash budget every week and stick to it so you don't add to your credit card balance. That way, you'll actually see your credit card balance decrease as you apply your payments.
5. Ask for an interest rate deduction
You might not know that you can contact your credit card issuer and discuss your interest rate. Emphasize your desire to pay off your credit card and improve your finances. The worst they can say is no. Just remember that it never hurts to ask! That said, you'll have better luck getting a lower rate if there are some things in your favour – maybe you have a great credit score or you've been a bank customer with them for years.
6. Establish an emergency savings fund
While this doesn't directly lower your credit card balance, it's actually one of the most important things you can do to stay out of credit card debt. Try to set aside some emergency savings, even if it's just a little. That way, if an emergency expense pops up, you won't have to charge it to your credit card.
FAQ
What is the minimum payment on your credit card?
The minimum payment is the lowest amount you're required to pay that month to keep your credit card in good standing with your card issuer. If you can't make the minimum payment, you'll be charged interest and possibly late fees.
Can you tell me how to figure out the minimum payment on my credit card?
First, you'll have to find out how your specific card issuer determines the minimum payment. They might charge a flat fee plus any interest and fees or a percentage of your overall balance – usually 3%.
Is it okay to make a minimum payment on a credit card?
Ideally, you'd pay off your balance regularly, but making the minimum payment is incredibly important. To keep your credit score in good shape, you should aim to pay more than the minimum every month.
What happens if I pay only the minimum on my credit card?
If you only make minimum payments but continue to use the card, your account will be in good standing, but you'll eventually hit your credit limit. If you stop charging to the card and only make minimum payments, your balance will gradually decrease and your credit score will improve.
What is the minimum payment on a $5,000 credit card?
According to the Government of Canada's credit card minimum payment calculator, assuming you have a credit card with a 20% interest rate and a $5,000 balance, your minimum payment would be $150. That assumes you'd be paying 3% of the overall balance.
What is the 15-3 rule for credit cards?
You may have heard of this supposed hack that's designed to improve your credit score. The idea is you make a payment 15 days before your bill is due and again 3 days before the due date. Unfortunately, this is overly complicated and doesn't improve your credit history or lower your credit utilization.
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