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minimum payment

Also called: minimum payment

The smallest amount that must be paid so a credit card is not considered overdue.

What it means

The minimum payment is the smallest amount a credit card holder must pay so the bill is not considered overdue. Usually it is only a small portion of the total bill. The remaining unpaid bill will be charged interest and carried over to the next month's bill.

Why it matters for families

Paying the minimum payment does avoid late fees, but it does not pay off the debt. Interest keeps running on the remaining bill, so the total debt can take a long time to go down. Families need to know that paying the minimum is not a payoff strategy, only a delay.

Example

For example, a total credit card bill of Rp2 million and a minimum payment of Rp200 thousand. If only Rp200 thousand is paid, the remaining Rp1.8 million will accrue interest. The next month's bill grows, and if this continues, the debt is hard to pay off even though payments are made every month.

Common misunderstanding

Many people feel safe because they have paid the minimum payment on time. In fact, the principal debt is still large and interest keeps running.

Related terms

  • credit cardA buy-now-pay-later payment tool whose bill is paid off each month.
  • debt ratioThe comparison of total installments to monthly income.
  • robbing Peter to pay PaulBorrowing new money to pay old debt, making the burden pile up further.
  • family budgetA plan for dividing monthly income into spending categories before the money is spent.

Definitions in this glossary are educational. For documents that are legally or financially binding, confirm with the party that issued them.

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The calculators and guides here are educational and are not personal financial or legal advice.