How to Compare Credit Card Payments
Credit card companies can use a couple of methods to set your credit card payment. Usually payments are based on a certain percentage of the outstanding balance. As your balance decreases, the minimum payment decreases as well.
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Considerations
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The minimum payment on a credit card is usually somewhere between 2 and 4 percent of the balance, according to MoneyCentral MSN. When you make purchases or take out cash advances, your minimum payment will increase as the credit card balance increases.
Calculation
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Some credit card companies will calculate a minimum payment based on 1 percent of the balance, plus any finance charges that have accrued for the billing cycle.
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Benefits
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The larger the credit card payment, the faster the principal balance is reduced. You pay less in finance charges when you pay down your credit card balance faster.
Payment Size
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A credit card with a balance of $2,500 and an interest rate of 7 percent will have the balance reduced by $485.42 when a payment of $500 is made. ($2,500 x .07 = $175/12 = $14.58). Subtract the interest of $14.58 from $500 to get the balance reduction. A payment of $1,000 reduces the balance by $985.42.
Features
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The higher your percentage, the more your minimum payment will be. If you have a balance of $5,000 with a minimum payment of 3 percent your payment will be $150. A minimum payment requirement of 4 percent yields a payment of $200.
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