Do I still get charged interest if I pay minimum payment?

The Minimum Payment Trap: Do You Still Pay Interest?

Many credit card users rely on making only the minimum payment each month, believing it’s a convenient way to manage their debt. While it might seem like a small victory to simply pay the minimum, the reality is far more complex – and often more expensive. The short answer is: yes, you almost certainly will still accrue interest charges if you only pay the minimum payment on your credit card.

This is because the minimum payment, as the name suggests, is minimal. It typically only covers a small fraction of your outstanding balance, often just the interest accrued that month plus a tiny portion of the principal. The vast majority of your original debt remains unpaid. And here’s the crucial part: interest is calculated on the remaining balance. So, even if you diligently pay the minimum every month, you’re essentially paying interest on interest, creating a cycle of debt that can be incredibly difficult to escape.

Think of it like this: imagine you owe $1,000 and your minimum payment is $25. That $25 might cover the interest charged that month, but the remaining $975 will continue to accrue interest until it’s paid down. This means you’ll be paying interest on the original $1,000, plus interest on the $975, and so on. This snowball effect can significantly increase the total amount you ultimately pay.

Exceptions to the Rule: Introductory APR Periods

There’s one major exception to this rule: introductory periods with 0% Annual Percentage Rate (APR). Many credit cards offer these promotional periods, typically lasting a few months or even a year. During this time, even if you only make minimum payments, you won’t incur interest charges. However, it’s crucial to understand that once the introductory period ends, the standard APR kicks in, and the interest charges will resume, often at a significantly higher rate. Failing to pay down a substantial portion of the balance before the promotional period expires can quickly lead to a large and rapidly growing debt.

The Bottom Line:

While making the minimum payment might seem manageable in the short term, it’s a deceptive strategy in the long run. It prolongs your debt, increases the total interest paid, and significantly slows down the process of becoming debt-free. To avoid this trap, aim to pay more than the minimum payment each month, ideally paying off your balance in full whenever possible. If you’re struggling to manage your credit card debt, consider exploring options like balance transfers, debt consolidation, or seeking professional financial advice. Understanding how interest works is the first step towards breaking free from the cycle of minimum payments and taking control of your finances.