When you use your credit card, your first concern is not about calculating minimum payments. Instead, your concern is what that monthly payment will be.
This is common for consumers who have learned to live in the world of credit cards. For years, we used credit cards to make those seasonal purchases while we used cash and checking accounts for daily expenses.
When you shopped for school clothes for four children, credit cards were used to spread payment for those purchases over several months.
You were careful to stay within the spending limit of your credit card and you may have considered what the monthly payment might be.
Using Credit Cards Frequently
The addition of electronic scanners when we use credit cards made the process faster and easier. As a result, consumers began carrying several credit cards and became accustomed to using credit cards for daily purchases.
They paid for groceries, hardware items, garden plants, dining out, tickets for theaters and concerts.
There was no longer a need to delay gratification as you could pay now and the amount due on the monthly credit card statement was very low each month.
It was safer to carry plastic cards than cash and you never had that embarrassment of not have quite enough to pay for your purchases at the checkout line.
Debt and Minimum Payments
As credit card debt grew, so did the realization that the low minimum monthly payments were deceptive.
Until very recently, the monthly minimum payment due on a credit card account balance might be as low as 1-2% of the balance. Of course, finance fees were also added each month.
Consumers began to realize that, in practice, the minimum payment was not an economically responsible way to manage credit debt.
Often the account holder who paid only the minimum due would find his APR increased by the lender.
Once the interest rate went up it was possible to pay the monthly minimum on time each time a statement was received and have the balance either stay the same or increase as finance charges mounted.
In the 1990s, regulations were added that forced credit card providers to adjust the monthly minimum payment.
The idea behind the change was to protect consumers from credit debt that could take 20 years to pay off due to low payment requirements.
The result was not quite what was intended by the new regulation. Lenders began computing monthly minimum payments at 4-5% of the balance plus a percentage of the finance fees.
This caused monthly payments to double or even triple for many who were already having problems paying credit card debt.
Calculating Your Minimum Payments Today?
Your lenders can tell you whether your calculated minimum payment use the formula recommended by the Office of the Comptroller of Currency or re calculated by a percentage of the debt balance.
Transaction fees for balance transfers, cash withdrawals and foreign transactions are added directly to your account balance so must be taken into consideration.
There may fees for options you’ve chosen such as insurance or recurring fees from services you’ve signed up for using your credit card. Don’t forget to consider any annual fees that might be added to your credit balance.
Almost all credit cards today have variable rates of interest that change with market conditions. You can use the interest rate on last month’s bill to help you calculate credit card minimum monthly payments.
If your credit card is new, you may currently have an introductory 0% or low APR rate for a limited time.
It’s a great idea to calculate your minimum payment as it will appear after the introductory interest rate expires to avoid any nasty surprises on your bill.
Write down the outstanding balance on your credit card. This would be the amount shown as a balance on last month’s statement less any payments made since then and adding on any new charges made since the prior statement.
Usuing Online Calculators
There are formulas available online to help you do the math if you want to fully understand how credit card minimum payments are calculated today. However, it’s much easier to go online and look for a basic card payment calculator.
Of course, if you want to completely dig yourself into math formulas and learn to calculate minimum payments then you’ll need to spend a little more time at the school bench!
P.S: If you are stuck with really bad credit file, our tips on secured credit cards could be your rescue!