Credit card issuers calculate minimum monthly payments using formulas designed to keep balances amortizing at the slowest possible rate, maximizing finance charge revenue.
1. The CARD Act Minimum Payment Warning Breakdown
Under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, monthly statements must display a Minimum Payment Warning Box demonstrating the true cost of minimum payments.
| Initial Balance | Interest Rate | Payment Strategy | Total Time to Pay Off | Total Interest Incurred |
|---|---|---|---|---|
| $10,000 | 24.99% APR | Minimum Payment Only (1% + Interest) | 28 Years (336 Months) | $19,420 in Interest |
| $10,000 | 24.99% APR | Fixed Payment ($350/Month) | 3.5 Years (42 Months) | $4,700 in Interest |
| $10,000 | 24.99% APR | Consolidation Loan @ 9.99% ($322/Mo) | 3.0 Years (36 Months) | $1,610 in Interest |