What is a minimum payment?
A minimum payment is the minimum amount due on a bill. Most classically, minimum payments are used on credit card bills, although other types of bills may also allow people to make a minimum payment and carry a balance over. There is usually no penalty for making payments over the minimum, and in fact people are often encouraged to do this, but failure to make the minimum payment can result in serious consequences. Typically, minimum payments are calculated as a percentage of the overall balance. The payment is usually high enough to cover the interest and a portion of the principal. In the case of a loan with terms, such as a car loan, the minimum payments are calculated to ensure that the loan is paid off within the term of the loan. Credit cards and other types of revolving credit accounts have minimum payments which are designed to keep the account in good standing, but not necessarily to pay the account off within a set period of time, because people can always add to the balance
Almost all credit cards have a minimum payment that is a percentage of your current balance. The calculation of this payment varies from card to card and in many cases, is limited by federal and state rules. The minimum payment is a very crucial number, because it is the smallest payment you can make in a billing cycle to keep your account from being unpaid (in default). If you carry a balance over time, you should expect the minimum payment to go up each month, sometimes by a lot. Whenever possible, try to pay off your credit card debt paid in full or pay as much as you can. Otherwise, you can end up paying a lot more than the original cost of your purchase. See also: How is my balance calculated every month? What is a billing cycle? What is a balance transfer?
