Minimum Monthly Payments for Credit Cards

Concerned about the tendency of many credit-card holders to pay only the minimum balance on their accounts and thus potentially extend their indebtedness for a lifetime, federal banking regulators have issued guidelines calling for banks and credit-card companies to increase the minimum required monthly payment. Sometime in 2006, most of us saw an increase in the minimum payment from an average of two percent of the total balance (which mainly covered interest and fees and has been quite profitable from the lenders’ standpoint) to three or four percent—possibly double what it was before.

For those in the habit of making only the minimum payment each month, the increase could have caused a short-term pain in the pocketbook, amounting to an additional $100 to $200 or so a month. It has also, however, made a small dent in the principal (usually at least one percent of the balance), thus shortening the total amount of interest paid and the length of time till payoff. Since the guidelines didn’t dictate what percentage of the principal must be paid, the exact amount varied from one company to the next.

To give you an idea of what this change meant, consider the unfortunate hypothetical borrower who has run up a balance of $12,000 on his credit card that carries an interest rate of 18 percent. According to, under the old guidelines our consumer would need more than 60 years and $34,931 in interest to pay off the balance if he makes only the minimum payment each month, even if he never charges another thing. With a new monthly minimum covering one percent or more of the principal balance plus interest and fees, those figures (in both time and dollars) would be cut nearly in half!

Yes, as painful as they may seem at first, the higher minimum payments are an encouraging sign that our country is trying to do something positive about the problem of out-of-control consumer indebtedness.