What happens if you only pay the minimum on your credit card?

It can be tempting to only pay the minimum amount due on your credit card bill each month, but doing so can come with a cost.

The minimum payment is the smallest amount of money that you have to pay each month to keep your account in good standing. Paying it will avoid late fees and penalty APRs, but you’ll still carry a balance on your card. That balance accumulates interest, which quickly adds up and makes paying off your credit card debt much more difficult.

Below, CNBC Select reviews what happens if you only pay the minimum due and why it’s important to pay your statement in full whenever possible.

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For smaller balances, you’ll probably need to pay the flat payment but larger card balances will have significantly higher minimum payments. A $10,000 credit card balance, could have a minimum payment of $200. Sometimes interest and fees are required to be paid as part of the minimum payment, which can increase what you owe.

If you’re unsure what you’ll owe each month, check your credit card’s terms or contact the issuer for more details on how your minimum payment is calculated.

It’s important to make at least the minimum payment so your account stays current and you don’t incur late fees, penalty APRs or hurt your credit. Even if you dutifully make your minimum payment, it’s not ideal to carry a balance from month to month, because you’ll rack up interest charges (unless you’re benefiting from an intro 0% APR) and risk falling into debt.

According to the Credit CARD Act of 2009, card issuers are legally required to include a “minimum payment warning” on each billing statement. This is often represented by a table that tells you the total time to pay off your balance and the total amount you’ll end up paying (including interest) if you only pay the minimum. Sometimes there will be an example showing what happens if you pay more than the minimum, and the resulting lower interest charges.

Here’s an example of a minimum-payment table where the minimum payment is $25, the interest rate is 21% and the statement balance is $1,000.

If you only make the minimum payment of $25 every month, it will take you almost six full years to pay off the balance. During this time, about $734 in interest charges would accrue. By increasing the minimum payment by only $5 to $30, the time to pay off the balance is cut to just over four years and you save over $200 on interest.

There are steep consequences to only paying the minimum, so it’s generally better to pay off your balance in full each month to avoid interest charges.

Look into 0% balance transfer credit cards

If you’re struggling to get out of credit card debt, a 0% balance transfer credit card can help you save on interest. For example, the Citi Simplicity® Card offers an intro 0% on balance transfers for a full 21 months, then a variable 18.74% – 29.49% APR applies. The intro APR only applies to balance transfers completed in the first four months from account opening and during that time, there is an intro balance transfer fee of 3% of the amount you transfer ($5 minimum). After the intro transfer fee expires, the balance transfer fee is 5% of the amount you transfer ($5 minimum).

There may be negative consequences when you don’t make your credit card minimum payment each month. You could be assessed late fees and a penalty APR could apply. If you miss a payment while taking advantage of an intro 0% APR credit card, the 0% APR could be canceled. So missing a minimum payment can be very costly.

Missed payments are also reported to the credit bureaus. A negative mark on your credit report from a missed payment has a significant impact on your credit score because your payment history makes up a disproportionately large percentage of your score.

If you’re working to get your credit back on track and can’t qualify for the best rewards credit cards, consider opening a secured credit card such as the OpenSky® Secured Visa® Credit Card. This card has a high approval rate of nearly 90%. Once approved, you can start improving your credit score by consistently making on-time payments.

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