Calculate Credit Card Minimum Payment

This post is to teach everyone how to calculate their minimum payment that they get on their credit card statement. All credit card issuers and banks must by law use the same precedent to calculate the payment. If you have several credit cards it is advisable to check the minimum payment on each, however if you don’t have the time you can carry out random checks on each card statement to ensure that you are not being over billed or cheated. In most instances the minimum payment will be approximately 1.8% to 4.1% of the outstanding balance on any credit card. The key is not what you pay monthly but how much of that payment goes to interest and how much goes to principal. To illustrate the calculation of a minimum payment on a credit card statement let us use some standard figures for say a Bank of America Credit Card You must note and write down these figures:

• Current Outstanding Balance (OB)
• Your Interest Rate (APR)
• Minimum Payment Calculation (MPC)
• Minimum Payment Amount (MPA)

For this example we said the OB = USD$2,000, the APR = 12% and the MPC = 2%

The formula is OB x MPC = MPA * 2,000 x 2% = $40.00

If your MPA is $40, this is not really a lot for an outstanding debt; however you must calculate how much goes to principal. The formula for this is APR/12 (being 12 months in a year) x OB. This will determine exactly how much of your minimum payment will be going to your principal owed. Let’s illustrate this – 12% / 12 months x 2,000 = 20.00. This means that $20.00 of the $40.00 you pay will be going towards interest that an effective rate of 50%. Astounding figures if we look on it in detail. If a credit card holder continues this then it will take years to repay the credit card debt and lead to excessive payments. This is why it is key to pay more than the minimum payment on any credit card debt. What many people don’t actually keep a breast of are bank fees. Below is a list of fees that are usually added to a credit cards minimum payment that inflate the MPA and result in less of your disposable income going to the bottom line principal.

• Late Payments Fees
• Over The Limit Fees,
• Credit Insurance Fees
• Processing Fees
• Yearly Fees

Once you have deducted these from the MPA on your credit card statement then you are able to calculate exactly what portion goes to principal and to interest. There are several calculators, however without taking into to consideration the above listed fees these calculators do not give you an accurate figure. This is easy on a month over month basis to calculate and to pre calculate as well. We teach our readers to examine each statement on its own merit and micro manages their debts.