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The true cost of credit

What you really pay when making minimum payments

Suppose you purchase a $400 plane ticket for vacation and charge it to your credit card, which has an 18% interest rate.

Instead of paying off the balance in full, you make the minimum payment each month of $15.

By the time you pay off the balance, after almost three years, you have paid $115 in interest for a total cost of $515.*

Charging to a credit card may seem like an easy way of making a big purchase in the moment. However, paying down such purchases can be a long and expensive process if you make only the minimum payments.

Key Takeaways:

  • If you make only the minimum payments, it can take years to pay off even a modest credit card balance.
  • Make sure you understand your card’s key terms, including its interest rate, fees and policies.
  • Your minimum payment may be calculated as a percentage of your balance or as a flat dollar amount, depending on the terms of your card.
  • The best practice is to pay your balance in full each month so that you don’t accrue any interest.

*Based on a time value of money calculation. 

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