11

Answers given by someone else on this site indicated an assumption that minimum credit card payments were always at least the amount of interest that would be charged, meaning that the balance would always go down as long as minimum payments were made.

I found a counterexample of this, where the minimum payment was 5% of the balance (and interest rates much more than this) and thus if you make the minimum payment only your balance will always increase. It was pointed out to me that this was a Canadian card.

Do different countries have different regulations, or is this me making a mistake?

George Marian
  • 6,651
  • 1
  • 31
  • 46
DJClayworth
  • 34,532
  • 7
  • 89
  • 123

3 Answers3

16

In the past, it was certainly possible for the minimum payment to be less than the interest. This situation was known as "negative amortization."

According to CreditCards.com, this practice has been banned in the US. If you make the minimum payment, it must cover the interest + a portion going towards the principal.

http://www.creditcards.com/credit-card-news/minimum-credit-card-payments-1267.php

Ben Miller
  • 116,785
  • 31
  • 330
  • 429
Benjamin Chambers
  • 4,685
  • 22
  • 27
4

This answer is really an admission of my own mistake. My 'counterexample' is not a counterexample at all. The 5% minimum payment is much more than the monthly interest payment.

DJClayworth
  • 34,532
  • 7
  • 89
  • 123
1

The new little "if you pay box" tells me that if I pay the minimum, I will pay it off in 3 years as opposed to paying a bit more and paying it off in 9 months.

Therefore, in the US I think paying the minimum will make progress toward a zero balance.

MrChrister
  • 25,328
  • 10
  • 69
  • 133