Minimum Monthly Payment Definition

The minimum monthly payment is the smallest payment amount which will adequately service an account for the billing cycle. For most US credit cards, the minimum monthly payment is based on the account balance and not the interest rate, and is typically about 2% of the account balance. This may have serious consequences over the long term. For example, a $1,000 credit card balance at a 19% APR with a 2% minimum monthly payment-assuming the account holder makes no new charges and always makes the minimum monthly payment-will take twenty-two years to pay off at a total cost of $3,400! Contrast this to a $1,000 credit card balance at a 19% APR where the account holder always pays $20 per month-in this case the account will pay off in eight years at a total cost of $2,000. Obviously, paying only the minimum monthly payment is a very foolish financial strategy. Strangely, it is also a very popular financial strategy.