How to Calculate Partial Payments for a Credit Card Account

If you want to calculate a partial payment for a credit card, there are a number of things you should take into account. The partial payment should be high enough to allow the balance to be reduced by some amount, even if it appears insignificant. A credit card company's suggested minimum monthly payment can be a percentage of the outstanding balance. Partial payments can be a lesser percentage amount.

Instructions

1. Find out all of the terms and conditions for the credit card. You should also know the current status of the account. Is the account past due and, if so, by how much? It would be helpful to know what the interest rate is, because that will determine how much interest is paid monthly. The balance owed and outstanding fees are significant. Fees can include late fees, over-the-limits fees and even cash advance fees.

2. Calculate the interest due. Standard payments or minimum payments for credit cards are usually between 2 and 5 percent of the outstanding balance. Credit card companies have recently increased the percentage used to calculate minimum payments. If a credit card balance has an interest rate of 12 percent with a balance of $10,000 along with $100 in fees outstanding from late charges and over the limit fees, you want to make sure the partial payment is adequate. Take .12/360 times 30 times the balance to get the interest. The interest due for 30 days would be $99.99. When you add the outstanding fees you come up with $199.99.

3. Calculate the partial payment. If the standard minimum payment is 4 percent of the balance, a monthly payment would be $400. When you subtract $199.99 from $400 you get $200.01. When the payment is applied, the outstanding balance will be reduced by $200.01. Usually a minimum payment should be enough to cover the interest due plus any outstanding fees and any past due amounts. If you set the minimum payment to 3 percent of the outstanding balance, the partial payment will be $300. When you subtract $200.01 from $300 you get $99.99. The balance is only reduced by $99.99 in this case.

4. Calculate a lower partial payment. When there is no longer a past due amount and there are no outstanding fees, you can calculate a lower minimum payment using 2 percent or 2.5 percent. In this example 2 percent will be the new partial payment. Using this percentage, a partial payment of $200 is established. This payment is still large enough to cover the interest charges, resulting in a principal reduction of $100.01.

5. Lower the interest rate. Many times the interest rate needs to be lowered so that a realistic partial payment can be calculated. The rate reduction can be for a temporary time frame. If the rate is reduced to 6 percent, interest charges for one month equal $49.98. If you use 1 percent of the balance, the partial payment is now $100. In a situation such as this, you can arbitrarily establish a partial payment of $75, which still results in a principal balance reduction, assuming there are no past due amounts or outstanding fees.

References

• credit card minimum payments