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Making only the minimum required payment on your credit cards? That’s a bad move

Dan Rafter
  • Credit
  • 4 minute read

Here are three ways paying only the minimum on your credit cards can hurt you:

1. It makes everything more expensive

If you only pay the minimum required payment set by your credit card company each month, that laptop you charged two weeks ago will be long gone and replaced by a newer model by the time you finally pay it off.

That’s how Sharon Lechter illustrates the folly of paying your credit card’s minimum required payment each month and nothing more.

“When you make just the minimum payment on a credit card you are a slave to your debt,” says Lechter, member of the National CPA Financial Literacy Commission and founder and CEO of Pay Your Family First. 

Sure, it’s easy to pay $20, $40 or whatever your minimum required payment is each month. As long as you make that minimum payment on time, you won’t get hit by late fees, and your credit card issuers won’t report any late payments to the national credit bureaus.


2. Your debt grows

By only making the minimum payment each month, you’re barely paying down any of your credit card debt. And that will cost you: credit cards charge interest on any unpaid balance.

“Credit card debt lets you get away with not paying off what you’re purchased,” says Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network. “Even if you have plans to pay it off, you may find the payoff date slipping further and further into the future.”

Gallegos offers this example: Say you charge $1,500 on a credit card with an interest rate of 19 percent and your minimum required payment each month is 4 percent of your outstanding balance. Even if you refrain from future use of this card, it will take you more than seven years to pay back your purchases if paying onhttps://contentmgmt.quinstreet.com/manageWebSite.action?webSiteKey=1930110#ly the minimum each month, and you will have paid more than $800 extra in interest to your card issuer.

3. Yes, your credit score suffers

Consumers are often under the false impression that as long as they at least make their minimum required payment each month their credit score won’t suffer. But William Waldner, a bankruptcy attorney in New York City, says this isn’t always true.

Credit scores are calculated according to a variety of factors. Consumers who pay their bills late or have recent bankruptcies or foreclosures on their records will have weaker scores.

But the amount of debt consumers have will also negatively impact their scores. Consumers with a lot of debt generally have lower scores than those who do not. A best practice is to always keep balances — your credit “utilization” — under 25-30% of available credit. This isn’t as easy as it sounds. The Survey of Consumer Finances by the U.S. Federal Reserve found the mean credit card balance among U.S. families is $5,700.

Waldner says that issuers do notice, too, when consumers only make the minimum required payment each month.

“If you are only paying the minimum, credit card companies see this. You might struggle to gain access to more credit,” Waldner says.

What to do next:

  • Consider debt consolidation. A personal loan can offer a fixed interest rate and a fixed term. You know exactly when you will pay off the debt and, depending on your credit, the interest is likely to be lower than your credit cards.
  • Shift your priorities. Stop spending on discretionary items until you pay off your credit card debt. Honestly, who needs cable anyway? Whatever you cut, apply that amount to your credit cards.
  • Know that little steps matter. Even if you can only pay $1 more than the minimum every month, do so — it will pay off. Always, always stretch your monthly budget as far as you can to pay above the minimum. Dig into the couch if you have to. Found money? No latte, sorry. It goes to the credit card.