DeluxeCalc

Minimum Payment vs Fixed Payment

How much interest am I wasting?

About this calculator

A credit card's minimum payment is designed to keep your account in good standing, not to pay the balance off quickly. Because it is recalculated from the balance every month, it falls as the balance falls, and most of each payment goes to interest for years. Paying the same fixed amount every month instead, even one only a little above the first minimum, keeps more of each payment working on the principal. This calculator follows both approaches month by month and shows how much more interest the minimum payments cost, which it calls interest wasted, and how much longer they take.

How to use this calculator

Enter your Card Balance, the Card APR and the Fixed Monthly Payment you are considering. The minimum payment rule is under Advanced assumptions: by default it is 1% of the balance plus that month's interest, with a $25 floor. Card issuers use different rules, and your statement shows yours, so change the percentage or the floor to match. Results update as you type, and the inputs are saved in the page address so you can share or bookmark a scenario.

The method

Each month the card is charged the APR divided by 12 on the current balance. On the minimum payment path, the payment is the percentage of the balance plus that month's interest, or the dollar floor if that is higher, or the whole balance if less is owed. Because the payment covers the month's interest plus 1% of the balance, the balance falls by only about 1% a month until the floor takes over. On the fixed payment path, the same payment is made every month until the balance is gone, with a smaller final payment. Interest wasted is the total interest on minimum payments minus the total interest at the fixed payment. If the fixed payment does not cover the first month's interest, the balance would never fall, and the calculator flags it.

Worked example using the default values

A $6,000 balance at 24% APR is charged $120 of interest in the first month, so the first minimum payment is $180: 1% of the balance, $60, plus the $120 of interest. Paying only the minimum, the balance is still $5,318 after a year and $3,283 after five years; the $25 floor takes over only in the 17th year, and the card is paid off after 252 months (21 years), with $10,887 of interest. A fixed $250 a month pays it off in 34 months (2 years 10 months) with $2,256 of interest. The interest wasted on minimum payments is $8,631, and the fixed payment finishes 18 years 2 months sooner.

Interpreting the results

The headline is the extra interest you pay by letting the minimum fall with your balance. The breakdown bar splits the minimum-payment interest into the part a fixed payment would also pay and the part that is wasted. Even a fixed payment equal to the first minimum makes a large difference: paying $180 every month instead of a shrinking minimum clears the card in 56 months with $3,987 of interest, saving $6,900. The chart shows why: the minimum-payment balance flattens into a long tail, while a fixed payment brings it down in a nearly straight line. If you enter a fixed payment below this month's minimum, the calculator tells you, because a card requires at least the minimum; a payment that low can cost more interest than the minimums, and the headline then says so.

Practical tips

Find the minimum payment rule and the payoff estimate on your statement; card statements must show how long minimum payments would take and the payment needed to pay the balance off in three years. Set up an automatic payment for your fixed amount so it does not drift down with the minimum. Stop adding new charges to the card you are paying off, or the fixed payment has to cover them too. If you have several cards, put any money above the minimums on the highest rate first, and compare a balance transfer or a consolidation loan if your rate is high.

Limitations

The card's rate is fixed and no new purchases, fees or late charges are added. Interest is charged monthly at the APR divided by 12, while most cards compute interest daily, so real interest can be slightly higher. Issuers' minimum rules vary: some use a flat percentage of the balance, some add fees to the minimum, and some raise the minimum when you are over the limit. Payments are assumed on time every month; a late payment can trigger a penalty APR, which this calculator does not model.

Frequently Asked Questions

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