Paying only the minimum on a card balance of 5,000 at 20% a year takes 259 months, about 21.6 years, and costs 8,662 in interest. Paying a fixed 250 a month clears it in 25 months, with 1,133 in interest.
The minimum here is 2.5% of the balance, or 25 if that is more. It falls as the balance falls, so the payment shrinks along with the debt. Most of each early payment is interest: the first minimum payment is 125.00, of which 83.33 is interest and 41.67 reduces the balance.
The minimum against two fixed payments
The same balance and the same rate in every row:
| Paid each month | Months to clear | Total interest | Total paid |
|---|---|---|---|
| The minimum, falling with the balance | 259 | 8,662 | 13,662 |
| 150.00, fixed | 50 | 2,359 | 7,359 |
| 250.00, fixed | 25 | 1,133 | 6,133 |
What the example leaves out
Card issuers set the minimum payment in different ways, and rates change. New spending, fees or a missed payment add to the balance and lengthen every row.