The Minimum Payment Trap
Credit card minimum payments are designed to maximize the interest you pay, not to help you pay off debt quickly. Here's why:
Example: $5,000 balance at 22.99% APR
- Minimum payment (2%): Takes ~22 years, costs ~$7,800 in interest
- Fixed $200/month payment: Takes ~3 years, costs ~$1,500 in interest
- Fixed $300/month payment: Takes ~20 months, costs ~$800 in interest
How APR Works
APR (Annual Percentage Rate) is divided by 12 to get the monthly rate:
- 22.99% APR → 1.916%/month
- On a $5,000 balance: $95.81 in interest just month 1
If your minimum payment is only $100, only ~$4 actually reduces your balance.
The Fastest Escape Routes
- Pay a fixed amount: Never let your payment decrease as the balance falls.
- Balance transfer: Many cards offer 0% intro APR for 12-21 months.
- Personal loan: Often 8-14% vs. credit card 20%+.
Action Plan: Calculate Your Payoff
Use our Credit Card Payoff Calculator to see exactly when you'll be debt-free and how much you'll save by paying more than the minimum.
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