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Taking the Mystery Out of Credit Card “Minimum Payment” Requirements

December 30th, 2008 · 3 Comments · Credit Cards

by Kristy Welsh

(Last Updated On: February 9, 2017)

If you are one of the savvy consumers who pays off their credit card balances in full each month, the required minimum payment “mystery” is probably of zero interest to you. I admittedly am one of the few and proud, using the minimum payments strictly when I have taken advantage of a zero interest credit card, upon which I’ll carry a balance up until the zero interest period expires. But for many folks, they are saddled with multiple credit cards each with a different formula or criteria for establishing their minimum monthly obligation. So how do they come up with this?

According to the American Bankers Association, approximately five percent of credit cardholders will pay just the minimum required on a monthly basis. The ABA unfortunately is predicting that this percentage will increase as the economy continues to suffer from layoffs, financial losses, company consolidations and bankruptcies.

Fortunately, legislation was enacted back in 2003 that changed the way banks were required to establish minimum payments, and the phenomenon of “negative amortization” was eliminated as a result. Negative amortization would affect a consumer’s account when their minimum payment was less than the amount of interest or fees charged to their account in the same month, the ultimate result being that those who only make minimum payments will simply see their debt continue to grow.

So how do they do it now? In response to the pressure by federal regulators, most banks changed the minimum payment criteria back in 2005 — generally one percent of the principal balance, plus any fees or interest for the month, which normally may be close to two percent of the overall balance. The factor that provides the most variation in the equation for calculating any individual’s minimum payment is typically the interest rate they are charged, and this may be contingent on their payment history, market conditions, or promotional credit card rate agreement. The one consistent requirement that all credit card companies must follow as they establish their formula for minimum payments is that they are required to do so in a way that allows consumers to pay a portion of the principal, so they can eventually climb out of debt.

Just for grins, here is a brief summary of how several of the largest credit-card issuers calculate minimum payments:

Discover Card: 2% of the balance, or a minimum of $15 plus any finance charges or fees

U.S. Bank: 1% of the balance (plus any finance charges and fees)– minimum of $10.

Bank of America: 1% of the balance (plus any finance charges and fees)

Chase Bank: The greater of 2% of the balance, or 1% of balance (inclusive of all interest and fees).

All consumers are encourage to minimize their credit card debt and make as significant of a payment as possible to avoid additional fees and interest. Another consideration? When you are applying for new credit, such as a home mortgage or car loan, the lender takes in to consideration the total of all required minimum payments for all accounts you have open– and in today’s lending environment, consumers need as many advantages as possible… wouldn’t you agree?

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3 Comments so far ↓

  • Puck

    I just logged into my Wamu credit card account and the minimum payment was $91.00. I happen to look at the balance of the card which was 2,594.00. So if I paid the minimum only it would still be 3.00 over the limit which would automatically let them charge another 39.00 over the limit fee. I know chase has purchased Wamu retail but don’t they have regulation’s for wamu or are they a free for all?

  • Dan

    I just looked at my Bank of America statement and my minimum was $438 and the finance charges are $455.71. Isn’t that illegal? My minimum was less than the finance charges. Scumbags.


    Bank overdraft fees are becoming absolutely ridiculous. On my site, we get 4-5 people a day complaining about being unfairly charged. Bank of America has just agreed to now charges up to 10 overdraft fees per day at $39 a pop. Considering how they re-order transactions to optimize their fees, this is going to seriously hurt even more customers. Its time to stand up against these policies and demand change.

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