How Minimum Payments Are Calculated and Why They Can Increase

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Understanding Minimum Payments on Credit Cards

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best financial decisions. For any mortgage service needs, call us at 213-732-3074.

What Is a Minimum Payment on a Credit Card?

A minimum payment is the smallest amount you can pay a credit card issuer to keep your account in good standing. While minimum payments can offer some financial relief during tough months, they are not an effective way to eliminate credit card debt. Automating at least the minimum payment can help you avoid late fees.

How Do You Find Your Minimum Payment?

Your minimum payment is listed at the top or on the first page of your credit card statement under “Payment Information.” This section also shows how long it would take to pay off your current balance if you only make minimum payments and avoid new charges.

How Are Minimum Payments Calculated?

Credit card issuers use different methods to calculate minimum payments. Two common methods are:

• A flat percentage of the balance owed, usually between 2% and 4%
• A percentage (typically 1%) plus interest and fees for the billing period

If your balance is below a certain minimum, such as $25 or $35, the payment may be due in full.

5 Reasons Your Minimum Payment Can Go Up

Your minimum payment can increase for several reasons:

1. Missed Payment: Missing a payment due date can result in late fees and a penalty interest rate, which can increase your minimum payment.
2. Late Payment: Paying late can also trigger a late fee and possibly a penalty interest rate. It’s best to pay as soon as possible and contact the card issuer to potentially waive the fee.
3. Increased Debt: If your total balance increases, your minimum payment may also go up.
4. Special Financing: If you take advantage of special financing offers, those payments will be added to your regular minimum payment.
5. Cash Advances: Cash advances come with fees and higher interest rates, which can increase your minimum payment.

The Bottom Line

If your credit card statement balance changes, your minimum payment might change as well. It’s crucial to pay at least the minimum payment to keep your account in good standing. Paying more than the minimum will help you pay off debt more quickly.

If you need to carry a balance, consider finding a credit card with the lowest interest rate you can qualify for, possibly one with an introductory 0% rate.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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