What Happens If You Only Pay the Minimum Credit Card Payment?
Credit card companies allow you to pay a minimum payment each month instead of the full balance. While this might seem convenient, paying only the minimum can lead to long-term financial problems. You may end up paying more in interest, staying in debt longer, and harming your credit score.
In this guide, we’ll break down exactly what happens when you only pay the minimum on your credit card, how it affects your finances, and what you can do to avoid long-term debt.
1. What Is a Minimum Credit Card Payment?
The minimum payment is the lowest amount you must pay each month to keep your credit card account in good standing. It is usually calculated as:
- A percentage of your balance (e.g., 3%-5%), or
- A fixed amount (e.g., RM50 or $25), whichever is higher.
For example:
- If your balance is RM5,000 and your bank requires a 5% minimum payment, you only need to pay RM250 this month.
- However, if your balance is low (e.g., RM200), you might be required to pay a fixed minimum payment of RM50.
While paying only the minimum prevents late fees and penalties, it does not help you reduce your debt quickly.
2. What Happens When You Only Pay the Minimum?
📌 1. You Pay More Interest
Credit card companies charge high interest rates (typically 15%-18% annually in Malaysia, and 20%-30% in the US).
- If you only pay the minimum, the remaining balance carries over to the next month and accrues interest.
- Over time, the amount you pay in interest could be more than what you originally borrowed.
Example:
Let’s say you have a RM5,000 balance on your credit card with an 18% annual interest rate.
| Payment Option | Monthly Payment | Total Interest Paid | Time to Pay Off |
|---|---|---|---|
| Minimum Payment (5%) | RM250 → decreasing | RM3,200+ | 10+ years |
| Fixed RM500 Payment | RM500 | RM1,000+ | ~1 year |
| Full Payment | RM5,000 | RM0 | Immediately |
💡 Takeaway: Paying only the minimum can take years to clear your debt and cost thousands in extra interest.
📌 2. Your Debt Lasts Longer
When you only pay the minimum, your principal balance (the actual amount you borrowed) reduces very slowly.
- Since most of your payment covers interest, only a small portion goes toward reducing the principal.
- This can trap you in a cycle of debt for years.
📌 3. Your Credit Score May Drop
Your credit score is affected by:
- Credit Utilization Ratio – How much of your available credit you’re using.
- Payment History – Whether you pay on time.
If you only pay the minimum:
✅ You avoid late fees, but
❌ Your credit utilization stays high, which lowers your credit score.
💡 Tip: To keep your credit score healthy, aim to pay more than the minimum and keep your credit utilization below 30%.
📌 4. You Risk Falling into a Debt Trap
If you continue making only minimum payments while using your credit card for new purchases, your debt keeps growing.
- You might reach your credit limit, reducing your financial flexibility.
- If you miss a payment, you could be charged late fees and higher interest rates.
3. How to Avoid Paying Only the Minimum
✔️ Pay More Than the Minimum – Even if you can’t pay the full balance, try to pay as much as possible to reduce interest charges.
✔️ Use the Avalanche or Snowball Method –
- Avalanche Method: Pay off high-interest debts first to save money.
- Snowball Method: Pay off smaller debts first for motivation.
✔️ Set Up Automatic Payments – Prevents missed payments and late fees.
✔️ Look for a Balance Transfer Credit Card – If you qualify, transfer your balance to a card with 0% interest for a limited time to pay off debt faster.
✔️ Reduce Credit Card Spending – Stop using your credit card for unnecessary purchases while paying off your balance.
4. Final Thoughts
While making the minimum payment keeps your account in good standing, it is a costly habit in the long run. Interest continues to accumulate, debt repayment takes years, and your credit score may suffer.
To avoid financial stress:
✅ Pay more than the minimum whenever possible.
✅ Keep your spending under control.
✅ Consider balance transfers or other repayment strategies.
💡 Want to pay off your credit card faster? Start making bigger payments today and watch your debt shrink! 🚀
