The dangers of only making minimum credit card payments

This article has been updated from a previous version. 

When you’re stuck in a debt cycle, it’s tempting to continue doing the bare minimum (I was guilty of this for a long time), but the truth is: minimum payments are keeping you in debt and might be doing more harm to your finances than good.  

Financial experts will always say if you can’t pay off your balance in full, it’s imperative you at least make the minimum monthly payment. This is the lowest amount you must pay each month on your balance to remain in good standing with your credit card company.  

According to the Financial Consumer Agency of Canada (FCAC), the minimum payment is either “a flat dollar amount, usually $10, plus any interest and fees or the higher of a dollar amount, typically $10, or a percentage of your outstanding balance, typically 3%.”  

Here’s what you need to consider when making only the minimum payment on your credit card balance. 

It will take you longer to pay off your debt 

“Paying the minimum payment puts you at risk in so many different ways,” says Jackie Porter, a certified financial planner.  

Porter explains how the minimum payment trap is designed to keep you dependent on lenders for a long time because minimum payments will first pay interest, then pay the fees, and last, put a small amount toward the principle, meaning you're barely making a dent on your overall balance. 

To urge people to make better credit decisions, Ontario requires banks and other federally regulated financial institutions to show an estimate on your credit card statement of how long it will take you to pay off your balance if you make only the minimum payments. In Quebec, credit card holders are required to pay at least 3.5% of the outstanding balance. And that rate will increase by 0.5% each year until it reaches 5% in 2025.  

But if you don’t read your credit card statements closely, you’re still at risk. Tracey Bissett, chief financial fitness trainer at Bissett Financial Fitness Inc., suggests using a credit card payment calculator to see exactly how long it will take you to pay off debt if you make only the minimum payment each month. Increasing your monthly payment by even a small amount will significantly shorten the time it will take you to pay off your balance. 

Making only the minimum payment costs you 

If you don’t pay your entire credit card balance by the due date, you’ll pay interest on your balance. The problem is that credit card debt typically has a much higher interest rate than other forms of debt, such as lines of credit or student loans. 

So, making only the minimum payment and letting the interest pile up does little to nothing to pay down your actual balance, and results in paying double or triple the original borrowed amount in interest. 

The Government of Canada displays the following example on its website: if you have a $2,000 balance on a card with an 18% interest rate and your minimum payment was $60 each month, it would take you 13 years and 10 months to pay the entire balance. By the time you make the last payment, you will have paid a total of $3,799. 

That’s $1,799 extra that could be used for something else.  

Making only the minimum payment can negatively affect your credit history 

Many factors determine your credit score, but a significant one is your credit payment history. If you show lenders that you’re a responsible borrower, you're more likely to get access to better financing. 

While having a long history of making your payments on time is seen by most lenders as a good sign when making credit decisions, if you're making only minimum payments, a lender can look at your credit report and score and choose not to lend you money, or charge you higher interest rates.  

But let’s say you can’t afford more than the minimum. What can you do? 

“Sometimes your situation could dictate that you do need to carry a balance for a while,” Bissett says.  In that case, Bisset suggests moving to a lower interest rate card (from 19% to one under 10%, for example). 

In terms of other credit options, Porter suggests taking advantage of the best balance transfer credit cards: “The extra money you’re saving on interest can be put toward your balance.” 

Another option is to consolidate your credit card balances into a personal loan. By doing so, you could access a lower interest rate or a more affordable payment that better fits your budget. Plus, if you struggle with making a dent in your credit card balance, an installment loan offers a predictable and structured repayment schedule. 

To make progress, move beyond the minimum payment 

It’s important to reiterate that making the minimum payment is still strongly encouraged because missing payments can severely impact your overall financial health.  

But be mindful that minimum payments aren’t enough to make progress, and not making progress on your debt can be extremely frustrating and can “take a toll on your mental health,” Porter says. 

  
“If you're only making the minimum payment on your credit card, that's not going to be helpful to you to accomplish milestones in your life,” Bissett adds.  

“Whether your goal is to buy a car, get a house, go on to further school, you may not be able to secure the financing you need to go and pay for that thing that you want to do.” 

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