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Minimum Monthly Payment

Candlefocus Editor
The minimum monthly payment is the minimum amount due on a revolving credit account, such as a credit card account, that must be paid each month in order to remain in good standing with the lender. The amount of the minimum payment is typically determined by the lender and will vary based on the individual’s credit score and credit limit. The minimum payment due is usually equal to a certain percentage of the total balance due on the revolving credit account, and can range anywhere between 1% and 4%.

The minimum payment due on a revolving credit account includes the principal, plus any interest and fees. While the principal will generally remain stable from month to month, interest and fees can change over the course of the loan depending on how quickly the borrower pays off their balance. Additionally, the interest rate charged on the loan may change for various reasons, including the user's overall credit worthiness and credit score.

Consumers who only pay the minimum amount due on their credit card balances each month will end up taking much longer to pay off their balances, resulting in higher overall costs due to compounding interest payments. Additionally, borrowers who pay the minimum due to credit card companies while continuing to use their cards will be digging themselves deeper into debt, as they are still accumulating interest and fees on the balance. For this reason, it’s always a good idea for consumers to strive to pay off as much of the balance as possible each month, as this will reduce their interest expenses over time.

Furthermore, borrowers with non-revolving accounts, such as car or real estate loans, have a fixed timeframe and payment schedule to pay off the loan balance. The minimum monthly payment on these accounts is typically set at the start of the loan, and the borrower must make on-time payments in order to stay in good standing with their lenders. Defaulting on these loans can have serious consequences, such as the repossession of any collateral used to secure the loan, or a negative mark on the borrower’s credit report.

Ultimately, making the minimum payment on credit cards, loans, or other forms of credit is better than not making payments at all. That said, making at least the minimum payment due is not enough; to truly stay in good standing with lenders, borrowers should strive to pay off as much of their loan balances as they can each month. This will not only reduce the amount of interest paid over time, but also help keep the borrower’s credit score in good shape.

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