If you want to get a lower minimum payment on your credit cards, you must be willing to pay down the balances some first. The reason is that credit card issuers were required to change the minimum payment calculations beginning in 2006. These minimum payment calculations are based on finance charges and fees, plus an extra amount that usually equals 1% or more of the balance.
Getting a lower minimum payment is possible if you are able to get lower interest rates. Paying down the balance will similarly reduce your minimum payments. However, if you are serious about paying off the debt, you must be willing to somehow increase the principal payments. Our accredited financial counselors can show you different options for lowering your minimum payments.
Pay Higher Principal while Making Lower Minimum Payments
This may sound like a paradox, but it can be possible to increase principal payments while making lower minimum payments if you qualify for a debt management plan. You can often get lower payments through our program even while making higher principal payments.
The trick is to reduce your finance charges by a greater amount than your creditors are reducing your payment. The end result is a slightly lower payment with a considerably higher percentage of your minimum payment going toward the principal rather than for finance charges.
Debt Management Plans May Reduce Minimum Payments
|Principal Balance||Interest Rate||Minimum Payment||Interest Paid||Principal Paid|
|$10,000||20%||$265.00 (interest +1%)||$166.67||$98.33|
|$10,000||9%||$220.00 (2.2% of balance)||$75.00||$145.00|
* Note: Actual interest rates and required minimum payments determined by individual creditors.
Notice that the payment on this account has dropped due to the way it is calculated through a debt management plan. Each creditor decides what interest rate to charge in addition to how the minimum payment is calculated for accounts included in a debt management plan. While some creditors may require a higher payment, most allow lower minimum payments to remain current.
The second instance shows how you can save with a lower minimum payment through a debt management plan while still making higher principal payments. Subsequent payments would reflect an even lower interest payment and higher principal payment. The results are lower total interest paid, a lower initial monthly payment and freedom from debt within three to five years.
Your Accredited Financial Counselor can help you evaluate your financial situation to determine what your new monthly payment would likely be. You can also get a good faith estimate on how long it will take you to eliminate your credit card debt. If you have been struggling with high debt balances, you can get relief from lower interest rates and lower payments.