• Canadian Capital One credit cards

    Minimum Payments
    - How Do Credit Cards Companies Calculate Them?

    I was doing some research for the previous article
    Which credit card debts should you pay off first? and realized that I should talk about something else that is relevant making credit card payments.

    It seems that credit card minimum payments are sometimes calculated differently by each credit card company. I was under the impression that each credit card company wanted you to pay 3% of the ending statement balance, and that this was the rule across the board.

    I found out that the minimum credit card payment are calculated differently as per the following examples:
    TD Visa Credit Cards: 2% of Ending balance.
    Presidents Choice Mastercard: 2.2% of Ending balance.
    American Express Gold Card: 3% or $10 which ever is greater
    Canadian Tire MasterCard: 3% or $10 which ever is greater
    MBNA: Interest Calculated on ending balance +penalties +service charges + $10

    ASSUMPTIONS:
    Let's assume that each had an ending balance of $5,000 outstanding with and interest rate of 18.99%.

    MINIMUM PAYMENTS CALCULATED
    TD Visa Credit Cards: $100
    Presidents Choice Mastercard: $110
    American Express Gold Card: $150
    Canadian Tire MasterCard: $150
    MBNA MasterCard: $88.75

    Monthly interest calculated = $5,000 x (18.9% / 12) = $78.75

    At first glance it seems better if you're making smaller minimum payments, but in the long run you'll pay much more interest for those cards.

    PRINCIPAL PAYMENTS CALCULATED
    TD Visa Credit Cards: $21.25
    Presidents Choice Mastercard: $31.25
    American Express Gold Card: $71.75
    Canadian Tire MasterCard: $71.75
    MBNA MasterCard: $10.00

    42 YEARS TO PAY OFF CREDIT CARDS?!!?
    If you paid only minimum payments on MBNA Mastercard, it would take you 500 months ( 42 years ) to pay off the credit card.

    If you paid off monthly payments @3% of ending balance as with American Express Canada it would take you approx 439 months ( 37 years ) to pay off this debt.


    UPDATE: I found this interesting article about credit card minimum payments rising in the U.S. from 2% to 4%. According to this article: Did you know your minimum credit card payment is rising? A new government program working to get Americans out of credit card debt is pushing credit card issuers to raise minimum monthly payments. Will you be able to make the higher monthly payment? Here are some tips for getting by.

    This is to help credit card users to pay off their debts faster. Is this going to cause alot of strain on the average American family?


 
Add Your Comments:
Fields with * are required
Your Comment Below:
 
Name*
 
Email*
 
Website
 
Code*
 
Enter Above Code
 
Note: Comments are moderated - Spam will be deleted
 
2 Comments
On Apr 27, 2008, Monty Loree Said:
I would recommend that people pay at least 3% of the ending balance each month. They should pay more if they can, however, paying only 2% per month is almost the equivalent of paying interest only on the debt.
On Apr 26, 2008, Sayla Yiah Said:
I never really thought about it to be honest. I just thought minimum payments what you had to pay. I've only had my credit card for a few months and didn't think about making more than the minimum payment.

I can start to see how making only minimum payments could cost me forever. Thanks for that post.
Home Blog Discussion From Credit Cards
Canadian Secured Credit Cards - Major Canadian Banks British Columbia (BC), Alberta, Saskatchewan (Sask), Manitoba, Ontario (Ont), Quebec (PQ), Newfoundland (NFLD), Nova Scotia, New Brunswick, Prince Edward Island (P.E.I.)