Insights & Advice From Bank Of Tennessee


Making Only Minimum Payments

Making Only Minimum Payments

Minimum payments seem like a great option for paying off your credit card debt— you can pay a low amount, avoid late fees, and keep your account in good standing. However, avoid paying the minimum amount unless you can't afford to do otherwise.

You might wonder why making only minimum payments could put you in a difficult situation when paying off your credit card debt. Over time, your balance increases because it's accruing interest, making it take much longer to pay off.

Plus, by the time you pay off your balance, you'll have spent way more money on interest alone when compared to your original balance. This article will discuss minimum payments, their impact on your debt, and how to pay more.

What Is a Minimum Payment?

A minimum payment is the lowest amount you can pay on a credit card each month while avoiding late fees and keeping your account in good standing. Paying the minimum balance every month allows you to avoid penalty APRs, late fees, and any bad marks on your credit report.

Making the minimum payment on your card will allow you to grow your credit while avoiding additional fees. However, if you can pay more, you should.

Impact of Paying the Minimum

Even if paying the minimum amount keeps you out of credit trouble, doing so will eventually come back to bite you. Each time you pay the minimum amount, the other money you owe is still outstanding and accumulating interest charges. Ultimately, you'll have to pay that amount off. The longer you wait, the more significant that balance becomes, making it more challenging to pay off.

If you're not paying off your entire balance by the due date, your debt will accrue interest, and you'll owe more money. Meaning, that each time you only pay the minimum amount, your balance will naturally increase due to your card's interest rate. Paying off the entire balance is the only way to avoid accumulating interest.

Let's take an outstanding balance of $5,000, as an example, on a card that charges a 15% interest rate. Paying only 2.5% of the unpaid balance each month will take you over 18 years to repay the debt. Over those 18 years, you'll pay almost the same amount you owe in interest charges.

Check the "Minimum Payment Warning" on your credit card bill. It'll show exactly how much credit card debt you've accumulated in the account. If you've only paid the minimum amount, it'll indicate how many years it'll take for you to pay it off. You might be surprised how long it'll take.

Should I Pay More?

It is always best to pay more than the minimum amount. Credit card companies establish a low minimum balance. Typically, it's either a fixed amount or a percentage of your balance. For example, it could be $25, or one or two percent of your debt, plus fees and accrued interest. While you can avoid late fees by paying the minimum each month, you'll eventually pay more than when you started.

If you pay more than the minimum amount, you'll have less debt, making it easier to pay off in time. Try revisiting your "Minimum Payment Warning." You'll determine how long it'll take to pay off the balance with your new payment amount. For example, if you start paying triple the minimum amount every month, you'll pay off your debt by one-third of the time listed on the bill.

If you can afford to pay more than the minimum, you should. If you can't, you should consider cutting down on other expenses so you can make larger payments each month. Paying a little more each month can make a difference in the long run.


Minimum payments seem like a great idea; however, knowing what they are and how they can impact your finances is essential. Paying the minimum each month may offer more flexibility with your finances. Still, you'll spend more money over time, getting you into more debt.

It's best to pay more if possible, and the better you and your finances will be. Paying down the entire balance each month is best to avoid accruing any interest and increasing your debt.