Paying Your Balance

A credit card offers you the option of paying your balance in full each month, in which case you usually pay little or no fee for the loan, or carrying a balance from month to month. If you choose to pay the minimum payment, or some other amount less than the full balance, the money you are borrowing will become increasingly expensive. The following table gives three examples of purchases made with credit cards and shows how much is paid, in total, after the interest has been paid on the credit card.

In this example, you are required to pay at least 2% of your balance. As you can see, a purchase of $2,500 on your credit card will cost over $6,000 in interest and take 30 years to pay off making only the minimum payments. This chart assumes you are not making late payments or new purchases.

The table below shows how much you can save by paying more than the minimum payment. As you can see, if you make the minimum payment on a balance of $2,500, you will pay $8,781 over 34 years. If you pay $50 a month on the same $2,500 purchase, you can pay your balance over 26 years and save over $4,000. If you can pay $100 a month, you can pay off your balance in only 3 years.