How to Calculate Minimum Monthly Payments

When you are calculating your minimum monthly payments on a credit card, keep in mind that the minimum monthly payments will vary every month due to the fact that your principal balance goes down every time you make a payment, so this is a calculation that you need to do every month. The government has also put rules into effect that require most credit card companies to charge you a minimum monthly payment of at least 4 percent or more of your current principal balance each month to aggressively pay off the debt.

Instructions

Basic Rate

1

Identify your credit card interest rate, current balance, and the minimum percentage that your credit card company is required to charge you for a minimum payment (usually between 2 to 4 percent). You will need to call your credit card company directly to find out the exact minimum percentage that is in effect.

2

Multiply your current balance by the minimum percentage rate. So if you have a $10,000 balance and you have to pay at least 4 percent of your balance each month, your total minimum monthly payment will be $400.

3

Calculate how much of your payment is going to interest and principal. Divide your credit card interest rate by 12 and then multiply that resulting percentage by your current balance. If you are being charged an interest rate of 14 percent per year, your monthly interest charge is 14 percent divided by 12, which equals 1.167 percent. Multiply that by your current balance of $10,000 and your monthly interest charge is $116.67 per month.

4

Subtract your interest cost from your minimum monthly payment to see how much of your payment is going to principal. In this case that amount will be $283.33. In the next month (assuming you do not use the credit card for new purchases) you will subtract the amount you paid in principal from your balance to get your new balance ($10,000 minus $283 = $9,716.67). You will use this new balance to calculate your minimum monthly payment in the next month.

1% Plus Finance Charges and Fees

5

Some banks prefer to use the minimum monthly payment formula of 1 percent of the principal balance, plus finance charges and fees--the 1 percent is the amount that you are paying down on your debt. To figure out your payments, multiply your balance by 1 percent first. That would be $100. This is the principal that you will pay toward the balance in our example from above.

6

Calculate the finance charges for the month in question. Divide your credit card interest rate by 12 and then multiply that percentage by the current principal balance minus the $100 principal payment you made (most credit cards apply your payment before your finance charge). This is your total finance charge. In our example from before, again the monthly interest rate would be 1.167 percent times the balance of $10,000 minus $100 for a monthly interest charge of $115.53.

7

Add in any fees you had to pay that month, including late fees, balance transfer fees and over-the-limit charges. Let's say you had to pay $25 in late fees in this particular month.

8

Add all of these numbers together--$115.53 in finance charges, $25 in fees and $100 in principal---to get your final minimum monthly payment of $240.53.