Credit Card Minimum Payments
Ever wondered how your minimum credit card payment is calculated in Canada?
In this video, Consolidated Credit Canada’s Jeff Schwartz breaks down the simple formulas credit card issuers use to determine your minimum payment—and what it means for your debt. Understanding how your payment is calculated can help you avoid costly mistakes and pay off your balance faster.
How do you calculate your credit card minimum payment in Canada?
Why does it matter?
Well, it depends on your card. Credit card companies typically use one of three methods. One, a percentage of your balance. Two, a formula that covers the month’s interest plus a portion of the principal. And three, a flat dollar amount. They’ll usually charge whichever number is the highest. You won’t believe how much it costs you to only pay the minimum amount due each month. But before we get to that, let’s just see how it works.
Say your balance is $3,500 and your credit cards APR is 18%. That comes to a monthly rate of 1.5%. Now, let’s figure out the interest. Take $3500 and multiply it by 015. The result is $52.50 in monthly interest. Here is the first minimum payment option. If the card uses a 2% of the balance as the minimum due, that’s $3500 times 0.02, which comes out to $70. If the issuer calculates 1% of principal plus interest, that’s 1% of $3500, which is $35, added to the interest of $52.50. The total for that next option is $87.50.
A third option that issuers can offer is a flat fee. Now, typically that’s around $10 to $15. So, we’ll go with $15. As I mentioned, the card issuer will usually require the largest of those amounts.
So, in our example, the minimum due would be $87.50.
So, what’s the cost if you only pay the minimum each month? Using the same example, it could take you anywhere from 10 to 20 years and cost you over $3,000 in interest alone. That’s why paying more than the minimum makes a huge difference. Check your statement. It will show the exact formula used. Want help running the numbers? Consolidated Credit Canada offers free confidential counseling to walk you through your options.
Visit https://www.consolidatedcreditanada.ca to get started.
