The Real Cost of Only Making Your Credit Card's Minimum Payment

It could take you decades to get out of debt this way.

Making your credit card's minimum payment isn't always a bad thing. It's definitely better than falling behind, racking up late fees, and ruining your credit. But if you're trying to get yourself out of credit card debt, you're unlikely to ever get there by paying the minimum, especially if you continue to charge new purchases to your credit card.

Making the minimum payment will keep you out of trouble with your credit card issuer. But if you only pay the minimum, it will cost you a lot of money, possibly thousands of dollars. Here's an example to show you what I mean.

How much will making only the minimum payment cost me?

The average American with credit card debt has a balance of $6,028, according to The Ascent's survey on credit card debt statistics, and the average credit card APR is 17%, according to the New York Federal Reserve. If you had that average balance of $6,028 and your credit card issuer required a monthly minimum payment of 2% of your balance, you'd pay about $120 in your first month. This minimum payment would shrink as your balance decreased.

If you chose to only make the minimum payment and your card had a 17% APR, it would take you 444 months, or 37 years, to pay down your debt. And you'd pay about $13,382 in interest on top of the $6,028 you owed -- all because you stuck to the minimum payment every month.

In reality, you'd probably end up paying a lot more than that because most people continue to charge new purchases to their credit cards, causing their balance to grow instead of shrink over time. Those who get stuck in this cycle will likely never get out of debt if they continue to stick to the minimum payment.

How much money can paying extra save me?

Paying extra can save you hundreds -- if not thousands -- of dollars, and get you out of debt faster. But it depends on how much you can afford to pay every month. Using our example above, if you were able to pay $150 per month -- just $30 above your initial minimum payment, -- you'd pay off your debt in 60 months and you'd only pay $2,954 in interest. If you could afford to pay $200 per month, it would only take you 40 months to pay back your debt and you'd only pay $1,889 in interest. 

You should aim to pay as much as you can afford every month in order to get rid of your credit card debt as quickly as possible. Consider using a balance transfer card so you don't have to contend with interest for a few months while you're trying to get your debt under control. You should also limit how much you charge to your credit cards going forward. More purchases will cause your balance to grow and will just make it harder to pay off.

What if I have debt on multiple credit cards?

Consider using the debt avalanche method if you have debt on multiple credit cards and you want to get rid of it as quickly as possible. Make a list of all your credit cards and note the balances and APRs on each of them. Place them in order with the card with the highest APR first and the card with the lowest APR last. If two cards have the same APR, put the one with the higher balance first. 

This strategy involves making the minimum payment on some of your credit cards, which as we just discussed, is not ideal. But in this scenario, it makes sense because you're making the minimum payment to avoid late fees and then you're using all of the extra cash you can spare to pay off the card at the top of your list. When that's paid off, you move onto the next credit card, and so on, until you're debt-free.

You can also try putting all the debts on a single balance transfer card, as I mentioned above, or take out a personal loan. Personal loans can have high interest rates, but they also have predictable monthly payments. That way, you don't have to worry about your balance growing any further -- as long as you don't charge more to your cards.

Credit card debt is a tough burden to carry. Making the minimum payment might give you a little more breathing room to spend money on other things now, but it'll probably come back to haunt you in the end. Make paying back your credit card debt a priority so that you can get that weight off your shoulders as soon as possible.