Credit cards can be a great way to buy things. Unlike when you pay out of your checking account, you can get all kinds of perks for using a credit card -- such as extended warranties and rewards that give you points, miles, or cash back.
What you don't want to do, though, is carry a balance on your credit card. You'll want to pay the card off in full when your statement is due so you don't get stuck paying credit card interest. Otherwise, you could find yourself spending an absolute fortune.
Say, for example, you had a $5,000 balance on your card. How much exactly would this cost you if you only made the minimum payment?
Making only the minimum payment is expensive
If you owed $5,000 on your credit card at the average interest rate of 21.19% (as of August 2023), and you made a minimum payment of 2% of your card's balance, it would take you 878 months (more than 73 years) to pay off your debt. And during that time period, you would pay a shocking total of $30,797.65 in interest.
You may be wondering how it is possible that this could happen. How could you end up in debt for 73 years and spend more than six times the amount you initially charged? It's very simple: Your minimum payment would almost entirely go toward covering the financing charges that you owe to your creditor.
Your first payment on your $5,000 balance, for example, would be for $100.00. Of that amount, $87.50 would go to interest and just $12.50 would go to actually lowering the balance outstanding on your debt.
You would bring down your balance so slowly that it would take you many decades to actually end up owing nothing. And with such a high interest rate, you would be paying your credit card company tons of money out of your bank account without making much progress.
How to deal with your expensive credit card debt
Obviously, it is not sustainable to get stuck paying a credit card balance for 73 years. You don't want to be paying off today's purchases as a retiree. So, you'll need to either:
- Pay more than the minimums
- Refinance your debt
Ideally, you'll consider doing both of those things. If you can refinance to a personal loan, you may be able to drop your interest rate dramatically. Plus a debt consolidation loan would come with a fixed repayment schedule so you'd become debt-free in a few years. You would have higher monthly payments, but save a fortune over time.
You could also explore options such as moving money to a balance transfer card. This would allow you to reduce your rate to 0% on the transferred balance for a limited period of time (although you'd usually have to pay an upfront balance transfer fee of 3% or 5%).
Paying more than the minimum on your current card could also help, although the high rate credit cards come with is always going to make paying off a balance more difficult if you can't refinance. Still, any extra you can pay will bring that balance down much faster since it will all go toward your principal balance instead of being applied to interest owed (and leaving you with nothing to show for it). So it's worth making the effort to pay more than the minimum due.
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FAQs
If you owed $5,000 on your credit card at the average interest rate of 21.19% (as of August 2023), and you made a minimum payment of 2% of your card's balance, it would take you 878 months (more than 73 years) to pay off your debt. And during that time period, you would pay a shocking total of $30,797.65 in interest.
How much is a payment on a $5000 credit card? ›
To pay off $5,000 in credit card debt within 36 months, you will need to pay $181 per month, assuming an APR of 18%. You would incur $1,519 in interest charges during that time, but you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.
What is the minimum payment on a credit card with a $2000 balance? ›
Minimum Payment on a $2,000 Credit Card Balance by Issuer
Issuer | Standard Minimum Payment |
---|
American Express | $35 |
Bank of America | $35 |
Barclays | $25-29 |
Capital One | $25 |
6 more rowsOct 19, 2021
What happens if I only pay the minimum payment on my credit card? ›
Interest charges add up: Typically, credit companies will charge you high interest rates on unpaid balances. If you only pay the minimum each month, the interest charges can snowball. The additional interest and any other fees are added on to your balance and can increase a lot over time.
Is 5k a lot of credit card debt? ›
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt.
What if you owe $5000 on a credit card and make only the minimum payment each month? ›
Making only the minimum payment is expensive
If you owed $5,000 on your credit card at the average interest rate of 21.19% (as of August 2023), and you made a minimum payment of 2% of your card's balance, it would take you 878 months (more than 73 years) to pay off your debt.
How long does it take to pay off a 5000 credit card? ›
It will take 32 months to pay off $5,000 with payments of $200 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
How much do I need to pay on my credit card to avoid interest? ›
Paying off your monthly statement balances in full each month is the path to avoiding credit card debt. As long as you pay off your statement balance in full, your grace period kicks in and you can make purchases on your credit card without paying interest until the next statement due date.
How much would a $5000 loan cost per month? ›
What is the monthly payment on a $5,000 personal loan?
Payoff period | APR | Monthly payment |
---|
1 year | 15% | $451 |
2 years | 15% | $242 |
3 years | 15% | $173 |
4 years | 15% | $139 |
3 more rows
How much is a minimum payment on a $3000 credit card? ›
The minimum payment on a $3,000 credit card balance is at least $30, plus any fees, interest, and past-due amounts, if applicable. If you were late making a payment for the previous billing period, the credit card company may also add a late fee on top of your standard minimum payment.
The minimum payment mindset
Here's how most people get trapped in credit card debt: You use your card for a purchase you can't afford or want to defer payment, and then you make only the minimum payment that month. Soon, you are in the habit of using your card to purchase things beyond your budget.
Should I pay off my credit card in full or leave a small balance? ›
Bottom line. If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt.
What's the minimum payment on a Capital One credit card? ›
With a balance of less than $25, your minimum payment is that total amount. If your balance is over $25, the minimum payment is $25 or 1% of your balance plus new interest and late payment fees, whichever is greater. Any amount that's already past due is also added to your monthly minimum payment.
How to pay off $5000 fast? ›
Credit card refinancing can help you pay off $5,000 in credit card debt much faster because a personal loan comes with a predetermined end date. You can even look into fast personal loans if you're in need of money as soon as possible. Debt consolidation loans allow you to combine multiple debts into one loan.
How to pay off $50,000 in debt in 2 years? ›
Tips for Paying Off $50,000 in Credit Card Debt
- Pay More Than the Minimum. ...
- Focus on High-Interest Debt First. ...
- Pay Off the Card With the Lowest Balance First. ...
- Review Your Expenses. ...
- Use Extra Cash to Pay Down Your Debt. ...
- Home Equity Loan. ...
- Personal Loan. ...
- Balance Transfer.
How much should I spend on a $5000 credit card? ›
On a credit card with a $5,000 credit limit, it's good to shoot for about $500 to $1,500 max. Hot Tip: Don't confuse your credit card limit or ideal utilization ratio with your spending budget. It might be good for your credit to spend about $500 on a card with a $5,000 credit limit each month.
What would payments be on $5000? ›
What is the monthly payment on a $5,000 personal loan? The monthly payment on a $5,000 loan ranges from $68 to $502, depending on the APR and how long the loan lasts. For example, if you take out a $5,000 loan for one year with an APR of 36%, your monthly payment will be $502.
Is $5000 a good credit card limit? ›
If you're just starting out, a good credit limit for your first card might be around $1,000. If you have built up a solid credit history, a steady income and a good credit score, your credit limit may increase to $5,000 or $10,000 or more — plenty of credit to ensure you can purchase big ticket items.
What is the minimum payment on a $3000 credit card Chase? ›
Minimum Payment on a $3,000 Credit Card Balance by Issuer
Issuer | Standard Minimum Payment |
---|
Chase | $35 |
Citibank | $45 |
Credit One | $150 |
USAA | $30 |
6 more rowsOct 19, 2021
How much should I spend on a 5k credit card? ›
On a credit card with a $5,000 credit limit, it's good to shoot for about $500 to $1,500 max. Hot Tip: Don't confuse your credit card limit or ideal utilization ratio with your spending budget. It might be good for your credit to spend about $500 on a card with a $5,000 credit limit each month.