Calculating the Minimum Payment
There are many variables that can affect the minimum payment on a credit card. These variables include the balance on the account, the APR (annual percentage rate) and monthly transaction fees. Transaction fees come in the form of fraud insurance, fees for balance transfers, fees for cash advances and possibly membership fees. This information is best found by looking at your most recent account statement, since it can vary over time. Another option is to contact the credit card company and ask a representative for the information.
Federally Issued Formula
In 2005, the Office of the Comptroller (OCC), which is under the U.S. Department of Treasury, issued a formula for credit card companies to use when calculating minimum monthly payments. It was created to help people pay debts off faster and reduce the risk of bankruptcy. The formula is: (account balance times APR) + (account balance times 1 percent) + (transaction fees) = (minimum monthly payment).
For example, let's say you have a balance of $2,000 with 19% APR and $20 in transaction fees. Your equation would be 380 + 20 + 20 = $420 due that month. This monthly payment would automatically reduce itself as the balance on the card goes down.
Percent of Total Balance
Some credit cards prefer to stick with their previous mode of calculating the balance. This is done by charging you a straight-up percentage on the balance that you owe, plus transaction fees. The percentage is commonly between one and four percent.
For example, if you have a $2,000 balance on your card and you pay four percent of your balance every month, with $15 in transaction fees, then you will be charged $80 as your minimum payment for that month.
Company Variations
Some major credit card companies have chosen to follow the OCC's formula to determine minimum payments. Others will look at the OCC formula and percentage formula, then charge the greater of the two amounts. Often, when the balance on the account is a low amount, like $15, the entire balance will be given as the minimum payment.
Finding the method that a credit card company uses can be as simple as looking at the fine print of the back of the most recent statement. Again, you may also call the credit card company to ask a representative how your personal payment is calculated.
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