The Hidden Cost of Minimum Payments on Credit Cards

Credit cards can be a helpful financial tool — they offer convenience, rewards, and flexibility. But when used without a clear repayment plan, they can quickly turn from helpful to harmful. One of the biggest traps many Canadians fall into is making only the minimum payment each month. It sounds manageable and responsible — after all, you’re paying something, right? Unfortunately, this approach can lead to long-term financial stress and thousands of dollars in unnecessary interest.

What Are Minimum Payments?

Your minimum payment is the smallest amount you must pay each month to keep your credit card account in good standing. It’s usually around 2% to 3% of your total balance or a fixed amount, such as $10 or $15. While this payment prevents late fees and protects your credit score temporarily, it barely reduces your principal balance.

The Debt Trap Behind Minimum Payments

Let’s look at an example. Suppose you owe $2,000 on a credit card with a 19.99% annual interest rate. If you pay only the minimum each month, it could take over 20 years to pay off the balance — and you’ll end up paying more than double the original amount due to interest.

This is the hidden cost: minimum payments make it seem like you’re staying on top of your debt, but in reality, you’re only keeping the interest alive. The credit card companies profit from this pattern, and consumers stay trapped in a cycle of revolving debt.

The Impact on Your Financial Health

Relying on minimum payments affects more than your wallet. It can hurt your credit utilization ratio (how much credit you’re using compared to your limit), which makes up a significant portion of your credit score. High utilization can lower your score and make it harder to qualify for better financial products in the future.

It also limits your financial freedom — the more money you dedicate to interest payments, the less you can save or invest in your goals.

How to Break the Cycle

1. Pay more than the minimum.
   Even an extra $20 or $50 a month can significantly reduce your repayment time and interest costs.

2. Focus on high-interest debts first.
   If you have multiple credit cards, prioritize the one with the highest interest rate.

3. Consider a debt consolidation loan.
   Consolidating your balances into a single, lower-interest loan can make repayment easier and faster.

4. Avoid adding new debt.
   Stop using your credit card until your balance is under control.

5. Create a monthly budget.
   Knowing exactly where your money goes helps you make room for larger payments.

Take Control of Your Financial Future

Making only the minimum payment may feel like a short-term solution, but it’s an expensive habit that delays your financial goals. Start taking small, consistent steps to pay off your balance faster. You’ll save money, improve your credit, and regain peace of mind — all by refusing to settle for the minimum.