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The smallest amount a credit card issuer requires you to pay each month to keep the account in good standing.
Why It Matters
The minimum payment is set to keep an account current, not to clear the balance. Because it is usually calculated as a small percentage of what you owe, it shrinks as the balance shrinks — which stretches repayment out and increases total interest substantially. Paying a fixed amount above the minimum, rather than the shrinking minimum itself, changes the arithmetic considerably.
Key Points
- Typically a small percentage of the balance, so it falls as the balance falls.
- Paying only the minimum extends repayment and raises total interest paid.
- A fixed monthly payment clears a balance far faster than a shrinking one.
Related Terms
Common Questions
The smallest amount a credit card issuer requires you to pay each month to keep the account in good standing. The minimum payment is set to keep an account current, not to clear the balance. Because it is usually calculated as a small percentage of what you owe, it shrinks as the balance shrinks — which stretches repayment out and increases total interest substantially.
The minimum payment is set to keep an account current, not to clear the balance. Because it is usually calculated as a small percentage of what you owe, it shrinks as the balance shrinks — which stretches repayment out and increases total interest substantially. Paying a fixed amount above the minimum, rather than the shrinking minimum itself, changes the arithmetic considerably.
Typically a small percentage of the balance, so it falls as the balance falls.
Paying only the minimum extends repayment and raises total interest paid.
A fixed monthly payment clears a balance far faster than a shrinking one.