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The Real Cost of Making Only Minimum Credit Card Payments

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Only paying the minimum on your credit card each month? A new LendingTree report shows that with a balance of $2,000 — well below the national average for those with credit card debt — and a typical interest rate, you’ll end up paying more than double that amount to pay it off in full, and it’ll take you more than a decade to do so.

The good news, however, is that the report also found that the right 0% balance transfer credit card, used wisely, can knock up to $1,000 or more off your total payout and shave years off your payoff time.

To create this report, we reviewed 10,000 randomly selected and anonymized credit card lines from the October 2022 credit reports of LendingTree users. We took from those reports the balance and minimum payment information associated with those cards and used them to estimate the typical APR on the cards, which came to about 21%. We then used all that data to analyze how much people could save if they made those minimum payments on a 0% balance transfer credit card instead. (See the full methodology below.) What we found was eye-opening.

Key findings

  • It would take someone more than 11 years to pay down a balance of $2,000 with a 20.99% APR while only making minimum payments. They would ultimately pay $4,456 — including $2,456 in interest — assuming no other fees.
  • If you bump up the debt to $5,000 and keep the same APR, it would take nearly 19 years of minimum payments — and a total payout of $12,703 — to pay that balance in full.
  • The right 0% balance transfer credit card, used wisely, can shave thousands of dollars off these payoff amounts and years off the payoff time. With that same $2,000 balance, similar monthly payments and a balance transfer card with a 0% APR for 15 months, the cardholder could knock $1,066 off their total payout. With the $5,000 balance, you could save $2,666. In both cases, the payoff time would be reduced by nearly two years.

Minimum payments lead to maximum interest accrual

The results of this report are clear: Paying just the minimum on your credit cards will cost you a fortune in the long run. In fact, over the life of that balance, you could pay significantly more in interest than the value of the original balance. That’s a scary proposition.

How does that happen? It’s because the minimum payment required by credit card issuers — the least you can pay while still keeping your account in good standing — is usually just 1% of the balance, plus any fees or accrued interest. You don’t have to be an accountant to understand that if you only pay 1% of a loan each month, it’ll take a long, long time to pay it off.

Still, the numbers we found in our latest report are shocking:

  • If you owe $2,000 on a card with a 20.99% APR and make just minimum payments, it’ll cost you $4,456 to pay off that balance.
  • That means the amount of interest you pay — $2,456 — will be nearly $500 higher than the original balance.

Those numbers are crazy. It’s basically like buying a fancy, new $2,000 stainless-steel refrigerator for your kitchen but paying for two. That hurts.

Bump up the debt to $5,000 and it gets far worse:

  • If you owe $5,000 on a card with that same APR and make just minimum payments, it’ll cost you $12,703.
  • That means the amount of interest you pay — $7,703 — will be a shocking $2,703 higher than the original balance.

Add all that up, and you’re looking at years and years of payments on those balances:

  • That $2,000 balance would take more than 11 years to pay off.
  • The $5,000 balance would take even longer — nearly 19 years.

That first number is like buying something when your kid is in first grade and paying it off around their high school graduation. With the second, you’re still paying that balance off at your kid’s high school graduation, but you would’ve bought the item before they were even born.

Again, these numbers are bananas, but they’re the realities facing millions of Americans today. The good news, however, is that help is available.

The best weapon in your arsenal against credit card debt

Simply put, 0% balance transfer credit cards can be a godsend for those dealing with credit card debt. These cards, available from virtually all major credit card issuers in the country, allow you to transfer the balance from another card onto them and then pay off the transferred balance without accruing any interest for a set period. These 0% periods are typically 12 to 15 months long, though they can be as short as six months or as long as 21. Whatever the duration, however, the savings can be significant.

It’s important to understand that most 0% balance transfer credit cards will charge you a fee of 3% to 5% each time you transfer a balance. (A 3% fee on a $2,000 balance is $60, while a 5% fee on a $5,000 balance is $250.) So these cards aren’t free. However, even with those fees factored in, the savings in interest and the reduction in payoff time are a big deal:

  • Even if you’re still making just minimum payments, transferring your $2,000 balance to a balance transfer card with a 0% APR offer for 15 months could knock $1,066 off your total payout. That’s even after factoring in a 3% balance transfer fee. You’d shorten your payoff by 22 months — nearly two full years.
  • With the $5,000 balance, you could save $2,666 and shorten your payoff by 22 months. Again, that is with only making minimum payments.

Those numbers are eye-opening. That’s significant money for almost any household. It’s money that could go into an emergency fund, a retirement savings account or a college fund. Instead, it’s lining your credit card issuer’s pockets.

Minimum credit card payment numbers at a glance

Comparing a 20.99% APR card to a 15-month 0% APR balance transfer card that reverts to 20.99%

$2,000 balance$5,000 balance
Total paid out under minimum payments$4,456$12,703
Total paid out with a 15-month 0% APR balance transfer card$3,390$10,038
Difference ($)$1,066$2,666
Difference (%)23.9%21.0%
Total months to pay off under minimum payments136227
Total months to pay off with a 15-month 0% APR balance transfer card114205
Difference ($)2222
Difference (%)16.2%9.7%
Total interest paid under minimum payments$2,456$7,703
Total interest paid with a 15-month 0% APR balance transfer card$1,390$5,038
Difference ($)$1,066$2,666
Difference (%)43.4%34.6%

Note: A 3% balance transfer fee has been added to the opening balance for transfer cards. While rounded numbers are displayed, the differences are based on unrounded figures.

It’s time to act

If you have credit card debt and you’re not at least considering getting a 0% balance transfer credit card, you’re doing yourself a disservice. As stated previously, it’s perhaps the best tool cardholders have in their battle against credit card debt.

Being able to go a year or more without accruing any interest on thousands of dollars in balances can be nothing short of life-changing. That’s true even in the best of economic times. However, with today’s rising interest rates and near-record card debt, it can be even more impactful.

They aren’t perfect tools, however:

  • You’ll likely be charged 3% to 5% every time you transfer a balance.
  • There will likely be limits to how much you can transfer onto the card.
  • You’ll likely have to do the transfers within a certain time frame after getting the card — often 60 days — to take advantage of the 0% deal.
  • The APR after the 0% introductory period can be higher than the card’s standard purchase APR.
  • The 0% deal can be revoked if you miss a payment.

Perhaps most important to know, however, is that not everyone can get one of these cards. They’re available from most major credit card issuers, but it typically takes good credit (think a 670 FICO Score or higher) to get one. That means that many of the people who could benefit most from one of these cards won’t have access to one, and that’s a shame. For those struggling with card debt who have good enough credit to qualify, the time to act is now. Otherwise, that debt will only get more and more costly, and that’s the last thing you need.

Methodology

LendingTree analysts used 10,000 randomly selected and anonymized active bank-issued credit card lines with a positive balance and current payment statuses in October 2022 to determine the minimum payments associated with balance sizes.

Analysts used card lines with balances of at least $1,000 to estimate the typical APR, based on the assumption that a minimum payment is interest accrued plus 1% of the balance.

For our calculations, we assumed that no payment could be less than $25. We further calculated the number of months required to pay off various card balances at various APRs, using the formula above.

To estimate equivalent payments on balance transfer cards during the 0% interest period, we calculated each payment as the same percentage of the balance covered under the minimum payment calculated using the formulas above for the variety of balances and APRs detailed in this analysis. We also added a 3% balance transfer fee to the starting balance.

 

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