Minimum credit card payment

A credit card does not have a limited repayment period like a consumer loan.

That’s why some credit card holders are confused about how to pay off debt. Let’s understand how the calculation works, what the minimum credit card payment is, and what it’s made of.

What is a minimum payment?

Each month, the owner of a credit card needs to deposit a certain amount, which is set by the bank. This contribution is necessary to prove that the client is solvent and to partially repay the debt.

You have to make a minimum payment within 25 days after the bank reports. Each financial institution has its own rules for calculating this amount. But usually, this payment does not exceed 10% of the total debt. Most often, this is not a fixed amount; it is calculated anew each payment period.

What is the minimum monthly payment on a credit card?

  • A minimum regular payment consists of several components:
  • the amount of the principal debt;
  • Interest for the use of bank funds. The calculation is made on the basis of the amount spent. The exception is the grace period, during which the bank services are not charged;
  • Additional commissions. For example, for cash withdrawal, for insurance, for paid information services;
  • penalties.

First you write off penalties and commissions, and then the interest and principal amount of the debt. This sequence explains the fact that the main debt is repaid slowly. However, consider that the client has the right to add more money to the account than the minimum payment. That way, the debt will be repaid faster. And the overpayment will be less.

You can’t know the minimum repayment amount when you get your credit card from the bank. All parameters that make up the payment are constantly changing. That’s why the new amount is calculated regularly. Accordingly, there is no schedule of fixed payments, as in the case of consumer loans.

Types of monthly payments

Each financial institution has its own algorithm for calculating the contribution. But there are three ways to calculate, or types of monthly payments:

  • a bank setting a fixed amount;
  • a percentage of the amount owed during the reporting period;
  • a percentage of the credit limit amount. The limit is set individually, depending on the solvency of the client and his credit history.

How do I know what is the minimum payment on my credit card?

The amount of the payment is determined by the bank. When the reporting period ends and the amount spent by the client is clear, the client is sent the amount of payment. The information is sent by sms and e-mail.

The amount of payment can also be found by means of online banking. You need to go to a personal office and choose a section with information about debts. If it is not convenient to use this service, you can call a help desk of the organization.

All other methods of information depend on the bank.

Is it possible to calculate the minimum payment yourself?

Yes, you can do it, if you find out the exact information on how the amount is formed. The information can be found in the loan agreement. If it is not enough, you can call the information service and clarify the nuances.

First of all, you need to check whether there is a credit calculator on the website of the credit institution. Using it to make an independent calculation is much easier than using formulas.

How to calculate the minimum payment on a credit card with a calculator? You need to enter the basic data – the amount spent during the reporting period, the maximum limit, the interest rate and other parameters. The calculation will occur automatically.

How do I repay my credit card debt?

The client has a choice of how to repay the debt on time. This can be done in three ways:

  • If there is a grace period, you need to repay the entire amount before the end of the grace period. It is best to make payments that exceed those set by the bank;
  • Pay regularly only fixed instalments, i.e. the minimum amount you have to pay on your credit card;
  • Always pay more than the amount specified in the notification of the credit institution.

The most advantageous option is the latter. This way you can avoid overpaying.

If you do not repay the debt on time, the limit will not be charged in the next reporting period. Until the client pays the money, he will no longer be able to use the credit card. Moreover, a penalty will accrue.