Minimum payment trap
Paying only the minimum on revolving debt keeps you in debt for years and triples or quadruples what you originally borrowed.
Credit card minimum payments are typically calculated as 1-3% of the outstanding balance, with a floor of $25-35. The minimum is designed to cover the interest plus a small principal payment — the bank stays profitable, the balance barely moves.
A $5,000 credit card balance at 22% APR, paying only the minimum:
- Time to pay off: ~22 years
- Total paid: ~$12,300
- Interest paid: ~$7,300
The same $5,000 paid down at $200/month:
- Time to pay off: ~32 months
- Total paid: ~$6,400
- Interest paid: ~$1,400
The minimum payment isn't a payment plan. It's an interest-collection mechanism. Anytime you have revolving balances above zero, pay more than the minimum — even an extra $50 a month dramatically compresses the timeline.
If you can't pay above the minimum, that's a signal to either restructure the debt (balance transfer, personal loan, refinancing) or reduce expenses fast. Sitting at minimums forever is the most expensive default in personal finance.
See also
- Debt snowball method — Pay off your smallest debt first regardless of interest rate, then roll its payment into the next-smallest. Optimised for motivation.
- Debt avalanche method — Pay off your highest-interest-rate debt first regardless of balance. Mathematically optimal for minimising total interest paid.
- Revolving credit — A line of credit (most commonly a credit card) you can borrow against repeatedly up to a limit, paying only a minimum each month.
- APR (Annual Percentage Rate) — The yearly cost of borrowing money, expressed as a percentage and including most fees — not just the interest rate.
Ask Cashowa about minimum payment trap
Apply this concept to your actual numbers — with verifiable math.