Paying less costs more with credit card


UNIVERSITY PARK, Pa. – As the euphoria of the holidays recedes, many people are facing large credit card bills. A consumer scientist in Penn State’s College of Agricultural Sciences said there are ways to pay less for the privilege of using credit cards.

By paying more than the minimum monthly payment indicated on your credit card statement, over time, you can save substantial amounts of money, said Cathy Bowen, associate professor of agricultural and extension education.

“Credit cards are convenient tools, but many people don’t realize that their repayment habits greatly influence how much it costs them to use credit,” she said.

“If you always pay only the minimum amount listed on your monthly statement, you are paying more than necessary to use credit. If you consistently pay more than the stated minimum, you will save money and get out of debt sooner.”

Double cost. Bowen explains that credit card companies typically bill their customers monthly, indicating a minimum payment due – the smallest amount that you can pay without falling behind on your debt repayment.

Many people routinely pay only the amount listed on the billing statement, not realizing that in some cases, they could almost be doubling the cost of the items they purchased on credit by the time the bill is paid in full.

“The minimum varies among cards, but it can be as low as 2 percent of your outstanding balance,” Bowen said. “When you pay the minimum, you’re basically paying only the interest and not getting rid of much principle. If you want to get rid of credit card debt, you should pay more than the minimum amount listed on your monthly statement.”

Strategy. Bowen said many cardholders pay the minimum because that’s the amount the company suggests, others because that’s all they can afford. The best strategy to get rid of credit card debt is to pay as much as possible in each statement cycle, she said.

For instance, on a hypothetical $1,000 credit card bill with an annual percentage rate of 18 percent, paying a 2 percent minimum payment ($20) will cost you about $862.18 in finance charges over 7 years, 10 months if you continue paying $20 each month.

“However, if you paid an additional $10 per month – $30 through the life of the debt – you’d be out of debt 3 years and 1 month sooner, and you would save about $465.43 in finance charges,” Bowen explained.

“So, if your intention is to pay off a credit card bill as soon as you can, pay as much as you can each month. Certainly pay more than the minimum amount stated on the monthly bill.”

Pay early. Bowen said paying the credit card bill early in the billing period before the payment due date also cuts credit costs. Most card issuers use the average daily balance method to determine monthly finance charges. By paying your monthly bill early in the billing cycle – very soon after you get your monthly statement – you can reduce your monthly average daily balance, thus lowering your monthly finance charge.

Web-based calculators are available to estimate the length of time it takes to pay off credit card debt at

“Pay More Than the Minimum,” a fact sheet available from Penn State Extension, lists tips on reducing credit card costs. Free copies are available by contacting your county Penn State Cooperative Extension office, or by calling the College of Agricultural Sciences Publications Distribution Center at 814-865-6713.


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