Why paying the minimum on a credit card takes over 20 years

A $6,500 credit card balance at 24% APR, paid down with minimum payments only, takes 21 years and 8 months to clear and costs $11,882 in interest, nearly twice the original balance. A fixed $300 a month clears the same balance in under two and a half years for about $2,100 in interest.

How the minimum payment is set

Most U.S. card issuers set the minimum at the month's interest plus 1% of the balance, with a small floor such as $25. On a $6,500 balance at 24%, that is about $130 in interest plus $65, for a first minimum of about $195.

The catch is that the minimum is recalculated every month. As the balance falls, the minimum falls with it. The payment stays just above the interest charge, so only a sliver of each payment reduces the debt. The balance shrinks slowly, and it keeps shrinking more slowly each year. That is how a four-figure balance lasts two decades.

Card statements in the U.S. are required to show how long minimum payments would take. The number is there because it surprises people.

Fixed payments change everything

Choosing a fixed amount and keeping it the same breaks the cycle. As the balance falls, the interest part of your payment falls, and the principal part grows. We ran the same balance through LifeCalculator's credit card payoff calculator:

Notice the jump between $150 and $200. At $150 a month, $130 of the first payment is interest, so the balance barely moves at first. Adding $50 more than triples the amount going to principal, and the payoff time is cut in half. At a high APR, the first few extra dollars above the interest charge do the most work.

Work backward from a date

A payoff date can be easier to commit to than a payment amount. For the same $6,500 at 24%:

• Debt-free in 24 months: $343.63 a month, $1,747 total interest
• Debt-free in 36 months: $254.98 a month, $2,679 total interest
• Debt-free in 48 months: $211.88 a month, $3,670 total interest

Pick the shortest timeline you can afford, set up that amount as an automatic payment, and stop using the card for new purchases while you pay it down.

Ways to lower the interest

• Ask for a lower rate. Call the issuer and ask. People with a record of on-time payments often get a few points taken off. It costs nothing to try.
• Balance transfer. A card with a 0% introductory rate on transfers can stop interest for 12 to 21 months. There is usually a fee of 3–5% of the balance, and the rate jumps when the promotion ends, so divide the balance by the number of promo months and pay at least that much.
• Personal loan. A fixed-rate personal loan at a lower APR turns the card into a loan with an end date. Use the loan generator to compare the payment and total interest.

More than one card?

If you're paying down several cards or loans at once, the debt paydown planner puts them in order and rolls each paid-off payment into the next. Our avalanche vs. snowball example shows how much that saves.