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The minimum payment
trap, exposed.
Making only the minimum payment on a credit card is the most expensive way to borrow money ever invented. This calculator shows you exactly how expensive.
Your Card
The power of one extra dollar.
Why minimum payments are designed to keep you in debt.
Here is something the credit card industry would rather you not think about too hard: the minimum payment is calculated to maximize the bank's profit, not to pay off your debt in any reasonable amount of time. That is not a conspiracy theory. It is a design choice, and it is written into your cardholder agreement.
On a $5,000 balance at 22% APR, paying only the minimum will take you roughly 22 years to pay off and cost nearly as much in interest as the original debt. Most people, if they knew this number in advance, would never have made the purchase to begin with. That is precisely why the number is never advertised.
The CARD Act box
Federal law now requires credit card statements to include a box showing exactly how long it will take to pay off your balance with minimum payments, and what you would need to pay to clear it in three years. It is called the "minimum payment warning." Look for it on your next statement. Most people have never noticed it.
The escape hatch
The math of minimum payments is brutal in one direction and surprisingly generous in the other. Because interest compounds daily, every extra dollar you pay attacks the principal directly and saves you money on every future day. Doubling your minimum payment does not merely cut your payoff time in half — it usually cuts it to a quarter or less.
If you cannot pay more, the next best move is to stop the bleeding with a balance transfer to a 0% APR card. You keep your same payment, but every dollar goes to principal instead of interest. On a $5,000 balance, that alone can save you thousands.
Stop the bleeding. Here's how.
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The Minimum Payment Trap, Exposed
A $5,000 balance at 22% APR takes 22 years to pay off and costs nearly as much in interest as the original amount.