Here’s what happens if you only pay the minimum on your credit card

It can be tempting to only pay the minimum amount due on your credit card bill each month, but doing so can come with a cost.

The minimum payment is the smallest amount of money that you have to pay each month to keep your account in good standing. By paying it, you’ll avoid late fees and penalty APRs, but you’ll end up carrying a balance on your card. That balance accumulates interest, which quickly adds up and makes paying off your credit card debt that much more difficult.

Below, CNBC Select reviews what happens if you only pay the minimum due and why it’s important to pay your statement in full whenever possible.

Minimum payments are calculated differently bank by bank. Typically, your minimum payment is the greater of a certain percentage of your balance (1% or 2%) or a flat minimum payment (such as $25 or $35).

For smaller balances, you’ll probably need to pay the flat payment but larger card balances will have significantly higher minimum payments. A $10,000 credit card balance, could have a minimum payment of $200. Sometimes interest and fees are required to be paid as part of the minimum payment, which can increase what you owe,

If you’re unsure what you’ll owe each month, check your credit card’s terms or contact the issuer for more details on how your minimum payment is calculated.

It’s important to make at least the minimum payment so your account stays current and you don’t incur late fees, penalty APRs or hurt your credit. Even if you dutifully make your minimum payment, it’s not ideal to carry a balance from month to month, because you’ll rack up interest charges (unless you’re benefiting from an intro 0% APR) and risk falling into debt.

According to the Credit CARD Act of 2009, card issuers are legally required to include a “minimum payment warning” on each billing statement. This is often represented by a table that tells you the total time to pay off your balance and the total amount you’ll end up paying (including interest) if you only pay the minimum. Sometimes there will be an example showing what happens if you pay more than the minimum, and the resulting lower interest charges.

Here’s an example of a minimum-payment table where the minimum payment is $25, the interest rate is 15.99% and the statement balance is $827.32.

If you only make the minimum payment of $25 every month, it will take me an estimated four years to pay off the balance. During this time, about $285.68 in interest charges would accrue. By increasing the minimum payment by only $4 to $29, the time to pay off the balance is cut to roughly three years and you save $57 in interest.

There are steep consequences to only paying the minimum, so it’s generally better to pay off your balance in full each month to avoid interest charges.

Look into 0% balance transfer credit cards

If you’re struggling to get out of credit card debt, a 0% balance transfer credit card can help you save on interest. For example, the Citi Simplicity® Card offers an intro 0% on balance transfers for a full 21 months, then a variable 19.24% to 29.99% APR applies. The intro APR only applies to balance transfers completed in the first four months from account opening and during that time, there is an intro balance transfer fee of 3% of the amount you transfer ($5 minimum). After the intro transfer fee expires, the balance transfer fee is 5% of the amount you transfer ($5 minimum).

When you don’t make your credit card minimum payment each month, there may be negative consequences. You could be assessed late fees and a penalty APR could apply. If you miss a payment while taking advantage of an intro 0% APR credit card, the 0% APR could be canceled. So missing a minimum payment can be very costly.

Missed payments are also reported to the credit bureaus. A negative mark on your credit report from a missed payment has a significant impact on your credit score because your payment history makes up a disproportionately large percentage of your score.

If you’re working to get your credit back on track and can’t qualify for the best rewards credit cards, consider opening a secured credit card such as the OpenSky® Secured Visa® Credit Card. This card has a high approval rate of nearly 90%. Once approved, you can start improving your credit score by consistently making on-time payments.

While paying the full statement balance is preferred, there may be times when you can only make the minimum payment. For those situations, it can be OK to only pay the minimum — but not long term. Once you have the funds available to cover your balance, pay it off in full. At the very least, you should try to pay more than the minimum, even if you can’t afford the full balance.

If you’re having trouble paying your statement in full regularly, that can be a sign of a larger issue. Review your cash flow and spending habits to see if there’s room to cut costs. You can also change your bill’s due date to one that’s more convenient for when you get paid.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.