How Soon Will Minimum Payments Pay Off My Credit Card?

When you make minimum payments on your credit cards, it’s hard to know how much of a dent in your debt you’re actually making. You’re chipping away at the debt little by little, but when will you actually be free of it? 

Maybe you’ve already tried to do a little math to figure it out, dividing your remaining balance by your monthly minimum payment amount. That should equal out to the number of months you have left, right?

Wrong. A pesky little thing called interest makes that calculation a bit trickier. So let’s look at a real-life example of making minimum payments on a credit card—and we’ll factor in interest this time. 

What’s the minimum payment on your credit card?

Let’s say you plan a vacation to Orlando, Florida that costs $2,500. You charge the entire cost to one of your credit cards, since you can’t afford to pay for the vacation right now. 

The minimum payment amount on that balance is just 2%, or just $50 for your first month, which you can afford. Sounds pretty reasonable so far—but let’s get to the nitty-gritty. 

How much of your minimum payment goes toward interest? 

Your monthly minimum payment will go toward paying down both the original balance and the accumulating interest on that balance. The average annual percentage rate (APR) on credit cards is about 18%, so let’s say that’s your rate on this card.

So with a $50 payment and an 18% rate, how much will go toward the balance and how much will go toward interest? Let’s do some quick math:

1. Divide APR (18) by 360 days (you can use either 360 or 365 days, but let’s keep it simple with 12 months x 30 calendar days) which equals .0005 (.05%).

2. Multiply .05% by 30 calendar days which equals 1.5%.

3. Multiply 1.5% by original balance ($2,500) which equals $37.50 in interest.

So $37.50 of a $50 monthly payment is going straight to interest. That leaves only $12.50 going toward paying off your actual debt. If you’re surprised by how much goes toward interest each month, wait until you see how much interest you’ll pay in total. 

How much will you end up paying back?

If you continue paying just the 2% minimum, your $2,500 vacation will actually end up costing $8,397. And $5,897 of that is just interest! 

How long will it take to pay it all off? 

Since minimum payments make such a small dent in the actual amount you charged on your card, paying off your debt this way would take nearly 3 decades!

Now compare that to paying off your balance without worrying about interest. We would simply divide $2,500 by $50, and the answer would be just 50 months, or a little over 4 years, to pay it back. 4 years compared to 30 years—those extra 26 years are the cost of making minimum payments. Compounding interest just keeps adding up, and you barely make a dent in your original balance month after month. 

What if I make more than the minimum payment?

Most consumers assume that minimum payments are the “normal” way to pay back their credit card debt. But once you sit down and do the math, you realize how little that method makes sense. 

In reality, if you can pay more each month, you definitely should. The sooner you can pay off your debt—before interest really starts racking up—the less you’ll pay in the long run. But keep in mind, even if you can afford to pay double your minimum payment amount, it would still take years to pay off the debt. 

Also, the fewer additional charges you make on your card, the better. While the scenario we went through assumes you won’t make any additional charges, it can be difficult to stop relying on credit for everyday expenses. Of course, additional charges can mean an increase in your minimum payment amount.

Get help paying your credit cards 

So even if you wanted to pay more on your debt each month, it may not be affordable for you. That’s why so many people feel stuck in a debt “trap.” And, even worse, many people struggle to even afford their minimum payments. If you’ve found yourself in either of those situations, then it’s time to find a way out. 

You have options if you’re ready to put your debt—and your minimum payments—behind you. Call one of our Certified Debt Consultants at 800-910-0065 to get a free debt assessment that will help determine the right solution for you.