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Many individuals believe that paying the minimum amount due on their credit card each month is a safe and responsible way to manage debt. After all, it keeps your account in good standing, helps you avoid late fees, and prevents immediate damage to your credit score. On the surface, this seems like a reasonable approach.
Nevertheless, using minimum payments in the long term is also a very costly choice. It keeps you in a cycle of being in debt, it shaves thousands of interest off your bank accounts, and it can ruin your financial situation and credit rating in ways that are not forthcoming now.
To highlight just how widespread this issue is, 11.12% of credit‑card accounts in the U.S. made only minimum payments in Q4 2024, marking a record high in the past 12 years
Through knowing the real meaning of minimum payments, ways of calculating minimum payments, and the outcome of making minimum payments, you will be in a position to make better decisions. You are able to save your credit, years of useless debt, money on interest, and create a more stable financial future.
You will also be informed about useful methods, resources and tools that can make a way out of the minimum-payment trap and allow you to regain control over your credit card debts once and for always.
Minimum payment is the least amount that your credit card issuer wants you to pay on an alternate monthly basis to maintain your account up to date. Usually, it is charged as between 1 and 3 percent of your current balance, and the charges and interest that are attached to the billing period (Investopedia, MoneyLion, CollegeAve).
Although the payment of the minimum will allow you to evade the penalties and continue sustaining your credit score at least initially, in the long run, it usually lures you into the oasis of debt and causes you to pay a lot of money in interest.
Also read: Pay Rent with Credit Card Canada : best platforms in 2025
We need to first understand how to determine minimum payment on credit card. There are two most common methods that the credit card issuers use to compute the minimum payment:
Issuers may adjust their formulas, and several do have legal rates of participation, and thus your lowest payment cannot fall below a specified dollar amount (usually 10 dollars). Besides, over-due amounts, over-limit charges, and even late fees are usually added to the current cycle's minimum required payment.
Interesting read: Can You Pay Rent with a Credit Card?
Most of the money that you pay to your credit card goes to pay debt interest instead of paying the credit balance when you make minimum payments. As an example, in the case of a balance of $1,000 with a 17 per cent APR and minimum payments only, it will take more than 9 years to repay, and the interest item would cost you approximately $857. In the worst case scenario, e.g, more balances or more interest rates, it can take up to 23 years and more than 8000 dollars in interest. This is why the minimum payments will put you in debt twice as long and multiply the total amount of money that you spend.
The reasons to make minimum payments are that they help keep your account in good standing, and you avoid paying late fees. Nevertheless, making minimum payments might damage your credit condition in the long term. Your payment history has a strong influence on your FICO score as it contributes 35 percent of your FICO score, and missing a single minimum payment can affect your score to the extreme. Also, making minimum payments is not usually an effective strategy in paying off your balance because doing so does not pay off much; therefore, maintaining a very high credit utilization ratio is also a negative drawback on your credit score.
Setting up auto-payments for just the minimum amount is common. While it helps avoid missed payments and fees, it also leads many consumers to carry balances for years, paying far more in interest over time.
Ultimately, relying solely on minimum payments often benefits the issuer’s bottom line, not your financial future.
The best option for escaping long-term debts and saving money on interest is to pay more than the minimum. Smaller additional payments you make every month can result in your significant decrease in the amount and payoff of your debt.
You can easily fall behind in making payments, and in this case, contact your card issuer and inquire about hardship programs. Most of the issuers also provide short-term relief measures, which can minimize interest or allow the payments to freeze as you take your life back.
These are the tools and resources to be considered to make you comprehend how much the payments of the minimum rates cost, and plan more wisely:
These resources can provide guidance and tools to help you pay down debt faster and improve your financial health.
Canadian credit card issuers typically compute the minimum payments at around 2 percent on the outstanding balance, along with accumulated interest and other charges. It is the standard procedure of the major banks such as RBC, TD, and CIBC, which allows them to maintain accounts in good standing.
In Canada, the Financial Consumer Agency of Canada (FCAC) is the regulator of Canadian issuers, analogous to CFPB in the U.S. They mandate banks to disclose the amount of time it would take to pay off your balance, provided you made only minimum payments a move that could be termed as part of consumer protection and transparency.
The average APR rates of credit cards in Canada are about 19-22 % and as a result, rolling a card means paying an extended interest expense. The thing is that to keep out of the long-term debt trap, Canadian consumers have to make every effort to pay above the minimum as much as possible.
Additionally, many Canadians are exploring paying rent with credit card in Canada, either to earn rewards or better manage cash flow. But it’s crucial to pay more than the minimum on those balances to avoid expensive long-term debt.
Although paying the minimum amount may mean that your credit will be saved in the short term and keep you from paying late fees, it also means that you will be in years of debt and pay thousands of dollars in interest in the long run.
As much as you can, strive to pay your entire statement balance (or, at least, than the minimum) to save money and have a better financial life tomorrow.
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It’s the smallest amount you must pay by the due date to keep your account in good standing. Usually, it’s a percentage of your balance plus interest and fees.
In Canada, minimum payments are usually about 2% of your balance plus any interest and fees, or a set minimum amount (like $10), whichever is greater. Check your statement or cardholder agreement for your issuer’s exact formula.
It can take years or even decades, costing you thousands in interest.
Paying the minimum keeps your account current but may keep your utilization high, which can hurt your score over time.
If you’re struggling, a personal loan with a lower interest rate can help consolidate debt and save money on interest.
