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Total Interest
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The Real Cost of Minimum Payments
Most credit cards require a minimum payment of 1–2% of the balance or $25 — whichever is greater. Paying only the minimum is one of the most expensive financial decisions you can make. On a $5,000 balance at 22.99% APR, making minimum payments of $100 would take over 8 years and cost nearly $5,000 in interest alone — almost doubling your debt.
📊 Average US credit card debt: $6,501 per cardholder (2025). At the average APR of 20–24%, this costs $1,300–$1,560/year in interest if you only make minimum payments.
Payoff Strategies
- Avalanche method: Pay minimums on all cards, put extra money toward the highest-APR card first. Saves the most interest overall.
- Snowball method: Pay off smallest balances first for psychological wins. Slightly more expensive but many people find it more motivating.
- Balance transfer: Move debt to a 0% intro APR card (typically 15–21 months). Eliminates interest during the promo period but requires a good credit score and a transfer fee (usually 3–5%).
Frequently Asked Questions
How is credit card interest calculated?
Credit card interest is calculated using your Average Daily Balance (ADB) multiplied by a daily periodic rate (APR ÷ 365). Each day's interest is added to your balance. This means interest compounds daily — which is why credit card debt grows so fast if you only pay minimums. To avoid interest entirely, pay the full statement balance by the due date each month.
What's considered a good credit card APR?
The average credit card APR in 2025 is around 20–24%. Rates below 15% are considered good. Rewards cards often carry higher APRs (20–26%) while secured cards and store cards can be 25–30%+. If you carry a balance, APR matters more than rewards — even a 2% cashback card is a losing proposition if you're paying 22% interest on your balance.
Should I close credit cards after paying them off?
Generally, no — keeping cards open (and unused or lightly used) is better for your credit score. Closing a card reduces your total available credit, which increases your credit utilization ratio. It can also reduce your average account age. The exception is if the card has a high annual fee with no offsetting value, or if having the card open tempts you to run up debt again.
Does paying more than the minimum help your credit score?
Yes, indirectly. Paying more reduces your credit utilization ratio (the percentage of available credit you're using), which is the second most important credit score factor at 30% of your score. Keeping utilization below 30% helps — below 10% is ideal. Paying down a $5,000 balance on a $6,000 limit card from 83% to 30% utilization can boost your credit score by 50–100 points.
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