Money, Explained From the Inside

Tools / Borrow / Chapter 12 · Credit Cards, Overdrafts and Revolving Debt

The minimum-payment trap

Minimum payments are designed to keep the account alive. Compare paying only the minimum with paying a fixed amount every month.

1 · The idea

Month by month

Each month the balance gains a month of interest and falls by the payment. When the payment is a percentage of the balance, it shrinks as the balance shrinks, so the balance falls ever more slowly.

The formula

New balance = balance × (1 + APR/12) − payment

APR
yearly card rate
payment
minimum: a % of balance (with a floor), sometimes plus the month’s interest

2 · A worked example

$3,000 at 20% with a 2% minimum (floor $25.00): first payment $60.00; clearing it takes 31 years and $10,210 in interest. Holding the first payment fixed clears it in 9 yr 1 mo for $3,504.

3 · Now use your own numbers

Change anything. The result updates instantly.

Try an example
Minimum payments only: time to clear
70 years
Minimum payments only: interest paid
$32,419
First month’s minimum
$80.00
Same amount, held fixed: time to clear
11 years
Same amount, held fixed: interest paid
$6,942
01k3k4k5k06121824303640
Years on the horizontal axis.
  • Minimum payments only
  • Same payment held fixed

What this means

When the minimum is a percentage of the balance, it shrinks as you pay. The payment falls as fast as the debt, so the debt lingers for years.

The simplest escape is to fix the payment at today’s minimum, or more, and never let it fall.

Illustrative, not personal advice. Inspired by Chapter 12 · Credit Cards, Overdrafts and Revolving Debt of Money, Explained From the Inside. Your figures stay in this browser. Real products add terms, taxes and conditions that this simple model leaves out.

4 · Take care

What this tool can’t see

  • Real minimum rules differ by lender and country: copy yours from your statement.
  • This ignores new spending. Any new purchases on the card make the picture worse.

5 · Go further

Where this fits

See it in a life:

DavidIncome without wealth

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