Credit cards give users an easy way to buy today and make off what they owe later. Though some use credit cards to pay for expensive purchases like a new TV or video game console, others use their cards daily for anything they need. As some cards offer cashback bonuses, users can make money when they spend money. The user gets a bill every month that shows the total amount they owe and what they spent in the last month, along with the minimum amount due. This is the amount they need to pay to keep the account active.
What Does the Minimum Payment Mean?
The minimum payment refers to the minimum amount the lender will take that month. Creditors rarely shut off credit cards after one missed or late payment, but they will block the individual from using the card if they keep using it without making payments. According to the experts at SoFi, the credit card minimum payment is usually a “flat percentage of the total outstanding balance.” This can range from one to three percent. The minimum payment may also include a percentage of the total amount spent in the last month plus interest.
Flat Rate Spent
Some creditors do not use percentages to figure out minimum payments. They instead charge a flat rate. The rate usually ranges from $25 to $35 and helps the user avoid hidden surprises in the future. No matter how much they spend, they know how much they need to pay the next month. Flat rates are usually only available on cards that have a low credit limit, such as $250 or $500. The creditor knows that the user will need to pay at least the flat rate to ensure they have some money available.
Small Balances
What happens if a person has a credit card and spends only a few dollars in a single month? Instead of showing them the minimum amount due, the creditor will ask them to pay off the total balance on the card. This is common among people who rarely use their cards. They might get a statement at the end of the month that shows they owe $26 for the money they spent at the gas station instead of the minimum amount due.
Paying More Than the Minimum
Lantern by SoFi recommends that users may more than the minimum amount shown on their statements. If they pay just the minimum amount, it will take them much longer to pay off their cards, even if they stop using them. It’s often helpful to round up to the next full dollar, such as sending $40 rather than the minimum amount of $36.75. Borrowers can also send double the minimum amount to cut down on the interest they pay in the coming months.
The credit card minimum payment due tells a borrower how much they need to pay to keep a card in good standing. Creditors usually base this amount on how much they spent and the interest on the card.