Credit Card Minimum Payment Calculator

What is a Credit Card Minimum Payment Calculator?

A Credit Card Minimum Payment Calculator is a financial tool that helps credit card holders estimate their monthly minimum payments and understand the long-term implications of making only minimum payments on their credit card debt. This calculator takes into account the current balance, annual interest rate, and the minimum payment percentage to provide insights into the repayment timeline and total interest paid.

Formulas for Credit Card Minimum Payment Calculation

The calculation involves several formulas:

1. Monthly Interest Rate: \[r = \frac{APR}{12}\] Where APR is the Annual Percentage Rate
2. Minimum Payment: \[MP = max(B \times p, 25)\] Where B is the balance and p is the minimum payment percentage
3. Monthly Interest: \[I = B \times r\]
4. Principal Payment: \[PP = MP - I\]

Calculation Steps

1. Calculate the monthly interest rate by dividing the APR by 12.
2. Determine the minimum payment by multiplying the balance by the minimum payment percentage (or $25, whichever is greater).
3. Calculate the monthly interest by multiplying the remaining balance by the monthly interest rate.
4. Subtract the monthly interest from the minimum payment to get the principal payment.
5. Reduce the balance by the principal payment.
6. Repeat steps 3-5 until the balance is paid off or a set time limit is reached.

Example

Let's consider a scenario with the following details:

• Credit Card Balance: $5,000
• Annual Interest Rate: 18%
• Minimum Payment Percentage: 2%

Calculation:

1. Monthly interest rate: 18% / 12 = 1.5%
2. Initial minimum payment: max($5,000 × 2%, $25) = $100
3. First month:
   • Interest: $5,000 × 1.5% = $75
   • Principal payment: $100 - $75 = $25
   • New balance: $5,000 - $25 = $4,975

This process continues each month. Using the calculator, we find:

• Time to pay off: 22 years and 11 months
• Total interest paid: $12,931.14
• Total amount paid: $17,931.14

This example illustrates why paying only the minimum on a credit card can be costly in the long run. It's always advisable to pay more than the minimum whenever possible to reduce both the repayment time and total interest paid.