The debt trap

See how minimum payments stretch a credit card balance over decades, then race avalanche against snowball.

Balance$5,000

Interest rate (APR)22.0%

Typical US credit cards charge 20–25% a year.

Minimum payment2.00% of balance

Minimum floor$25

The smallest minimum the card will ask for.

Fixed monthly payment instead$200

Minimums: time to pay offnever

Minimums: interest paid∞

$200/mo: time to pay off2 yr 10 mo

$200/mo: interest paid$1,750

Paying the minimum Paying $200 a month

The first minimum is only $100, and $92 of it is interest. Because the minimum shrinks as the balance shrinks, paying it takes never and costs more than you could ever repay in interest. A steady $200 clears it in 2 yr 10 mo.

Try this

Leave everything at the defaults. How many years does a $5,000 balance take on minimums alone?
Set the minimum to 1% of the balance. Does the card ever get paid off?
Find the smallest fixed payment that clears the balance within three years.

The math

n = -\dfrac{\ln\!\left(1 - \dfrac{rB}{P}\right)}{\ln(1 + r)}

$n$: months to pay off with a fixed payment
$B$: starting balance
$P$: fixed monthly payment
$r$: monthly interest rate, APR ÷ 12
$rB \geq P$: the payment never beats the interest

Ask the Loop about this Next: Lump sum or a little each month