What is the minimum due on a credit card, and what does paying it cost?
The minimum due is the number that keeps you out of trouble with the bank and inside it with the debt.
Paid on time, in full standing, and larger than last month.
What the number is made of
Typically a small percentage of the outstanding balance, often around five percent, plus any interest already charged, plus any fees, plus any amount past due. Exact formulas vary by issuer and are printed in the terms nobody reads.
The important property is that it is calculated to be affordable, not to be sufficient. It is the number at which the account stays open and the relationship stays healthy. Whether the debt shrinks is a separate question the number is not trying to answer.
The grace period is the real cost
Here is the part that surprises people, and it is the single most useful thing in this article.
A credit card normally gives you an interest-free period between the purchase and the payment due date. That period exists only while you pay the statement in full. The moment you pay less than the full amount, the grace period is withdrawn, and two things happen.
Interest starts accruing on the remaining balance immediately. And interest also starts accruing on new purchases from the day you make them, with no interest-free window at all, until you clear the balance in full again.
So the cost of paying the minimum is not just interest on the amount you carried. It is the loss of the free credit you were getting on everything you buy next month, which most people do not realise they have stopped receiving.
Why the arithmetic is worse than it looks
Credit card interest is quoted monthly and compounds. A rate that reads as a modest monthly figure is a much larger annual one, and the interest is charged on a balance that includes previously charged interest.
Meanwhile the minimum is a percentage of a balance that is shrinking only slightly, so the minimum itself falls as the balance falls, which stretches the repayment further. The structure is stable rather than spiralling for most people, but stable at a cost that runs for years on a purchase that took a minute.
Two practical rules follow. Paying anything above the minimum goes disproportionately against principal and shortens the whole thing considerably, so the gap between paying the minimum and paying slightly more is much larger than the gap in the amounts. And if a balance has been carried for several months, a lower-interest alternative such as converting to an instalment plan is usually cheaper than continuing, though it is worth checking the processing fee before assuming so.
A boat with a slow leak and a small bailing tin. Bail every day and the boat does not sink, which is genuinely worth something. The water level still rises, because the tin was sized to be liftable rather than sized to beat the leak.
Where you meet it
Every statement showing two numbers where one is comfortable and one is not. Every credit card app that pre-fills the smaller figure. Every month the balance was paid on time and grew anyway.