The Cost of Only Making the Minimum Payment

Depending on the credit card your minimum payment can be as little as the interest charged plus 1% of your balance or $15, whichever is greater.  If you only pay the minimum on a credit card with the above minimum payment, you could pay off your entire mortgage without making extra payments before you have paid off your credit card balance in full.
    With a $10,000 balance you would pay over a 150% of your balance in interest and it would take you over 25 years to pay.  It sounds ridiculous, but it is true.  Of course this is assuming that you would only be making the minimum payment due and not aggressively paying down your balance or even moderately paying down your balance.


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Credit Card Nerd Math

A 19.99% interest rate that is compounded monthly will compound at a rate of (19.99%/12) = 1.66583% a month.  Each month the interest charged will be the balance x 1.66583%.  For example $10,000 balance x 1.66583% monthly rate = $166.58 in interest.
    The balance will be paid down by only 1% of the balance each month.  So next month's balance will be the current balance x 0.99.  For example, on the first month the ending balance will be $10,000 x 0.99 = $9,900, which is a $100 reduction in principal.  Each month your principle payment will be 1% smaller compared to the previous month.   In 24 years (288 months) your balance would be $10,000 x (0.99288) = $553.  Your principle payment will be about $6 for your 288th month.  This is also the approximate time when the $15 minimum payment rule will take effect.  If you want to check out all the numbers we recommend using a spreadsheet or you could be at adding and multiplying numbers all day.
    Below we have a chart with the remaining balance at month's end, the interest paid during that monthly statement period and the total amount paid up to date.  This is for a $10,000 credit card balance with a 19.99% interest rate.  The minimum payment is 1% of the balance plus any interest during the statement period or $15 whichever is greater.



Paying down a $10,000 Credit Card Balance while making the minimum payment

Month

Balance

Interest Paid

Total Interest Paid

1

$9,900

$166.58

$167

2

$9,801

$164.92

$332

3

$9,703

$163.27

$495

4

$9,606

$161.64

$656

5

$9,510

$160.02

$816

6

$9,415

$158.42

$975

7

$9,321

$156.83

$1,132

8

$9,227

$155.27

$1,287

9

$9,135

$153.71

$1,441

10

$9,044

$152.18

$1,593

11

$8,953

$150.65

$1,744

12

$8,864

$149.15

$1,893

18

$8,345

$139.02

$2,757

24

$7,857

$130.88

$3,570

30

$7,397

$123.22

$4,336

36

$6,964

$116.01

$5,057

48

$6,173

$102.83

$6,375

60

$5,472

$91.15

$7,544

72

$4,850

$80.79

$8,579

180

$1,638

$27.29

$13,930

288

$553

$9.31

$15,746


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A Wake Up Call

The minimum payment will depend on the credit card, but there are many credit cards in Canada that allow you to pay only 1% of the balance plus the interest for that month or $15 whichever is greater.  Paying only the minimum amount due can have you paying off your credit card debt for decades.  A $10,000 balance would take almost two decades before your monthly bill would reach the $15 minimum and a total of at least $15,000 in interest paid along the way.
    You may not have a $10,000 credit card balance, but the average Canadian does have $3,500 in credit card debt.  Even a $3,500 balance would take thirteen years before your monthly minimum would reach the $15 minimum amount and you would have paid over $4,000 in interest along the way.
    Paying the minimum on each billing period will get you almost nowhere.  The only way to get out of the credit card debt is to at the very least pay more than the minimum amount due.  It is hard paying down debt at 19.99%.  If you have a large balance you might want to check out if you can get a credit line at your bank or if you have a smaller balance you might want to take advantage of the introductory interest rates on the credit card balance transfers.