How minimum credit card payments keep cardholders in the red

Cardholders continue to struggle when it comes to their credit card debt. The share of active accounts making only minimum payments hit a 12-year high in the fourth quarter of 2024, according to data from the Federal Reserve Bank of Philadelphia.

Additionally, the bank found that the share of revolving card balances to total card balances has continued its rise since the end of the pandemic, surpassing pre-pandemic levels in the third quarter of 2023. Revolving card balances reached $645 billion in the third quarter of 2024, representing a 52.5 percent rise since a decade-low $423 billion in the second quarter of 2021. “Total card balances have also grown, although not quite as quickly, reaching a series high of $914 billion,” explain Federal Reserve Bank authors Nick Smith and Gene Huang.

But how do these statistics translate in real life? Since the pandemic caused so much negative financial fallout, people are still having a hard time making ends meet every month, says Jim Triggs, CEO of Money Management International, a nonprofit organization that provides financial education and counseling to those struggling with debt and budgeting.

“If a consumer carried credit card balances or relied on credit cards to cover expenses when they did not have the cash, their interest rates have skyrocketed over the last few years,” says Triggs. “Pair that with increased costs for food, gas, transportation and housing, and it’s a recipe for financial disaster. Unfortunately, folks just aren’t able to pay more toward their credit card debt to pay it down faster like they were doing pre-pandemic.”

Numbers never lie

As long as you carry a balance, the total interest you’ll pay on your credit card will continue to grow, making it even harder to get out of debt. The chart below illustrates how long it will take to pay off a card’s balance if you only make minimum payments, according to data from Bankrate’s minimum payment calculator.

The cost of minimum payments

As you can see, the total interest that accrues when you only make the minimum payment on your card can actually exceed your original balance, meaning you’ll pay more in interest than you did for your original purchases. It’s easy to see how these numbers can feel intimidating or seem like a hole you’ll never be able to get out of.

Impact of minimum payments

Darryl Francis, a past MMI client, admits that he didn’t have a great understanding of how much of an impact making only the minimum payments can have on a credit card balance. “I just thought that the minimum payments were just that: this is the minimum amount you have to pay to keep your account in good standing,” he says. “But I didn’t necessarily recognize the impact that it had on my credit score and everything else.”

Francis discovered the ugly truth about minimum payments after seeing how his credit card interest was growing, along with his balance. “Then I noticed that little disclosure on my statement that if you continue to pay the minimum, it’ll take you 100 years to pay it off,” he says. “I was finally reading those disclosures on the statement and understanding how that interest caused the card balance to grow.”

On top of that, other bills were taking priority over credit cards. “My mortgage was the top priority,” says Francis. “I wanted to make sure we [didn’t] have any issues with the bank for that. My car payment also took precedence, along with utility bills, car repairs and maintenance and childcare.”

Initially, it was ‘out of sight, out of mind’ for Francis, who was able to keep up with his minimum payments for a while. “But it started to get to the point where it became tough to manage,” he says. “You’re doing a balance transfer to try and get a lower interest card, but then you max out that new card. It’s like you’re robbing Peter to pay Paul. It was at that point where I’m looking at all of my cards, they’re all maxed out, and I asked, ‘what’s my recourse? What am I going to do at this point?’”

Time for help

For Francis, the tipping point came when he realized his credit score had gone downhill. “I couldn’t use my strategy of getting another card,” he says. “It became really tough to manage, and I figured at that point the stress and worry of the situation was starting to affect those other more important bills, which led me to look for help with MMI.”

Francis recognized that it was time to seek help and not worry about the social implications of doing so. “I took that first step to make the phone call and go into it with an open mind,” he says. “The good thing about MMI is that there wasn’t really any pressure. I didn’t feel like I had to make a decision that day.”

Francis used that first call to understand what his options were. “I was able to sit with it for a little bit and think about what my next steps would be,” he says, adding that he felt his debt wasn’t so insurmountable.

Before signing on to work with MMI, Francis said he couldn’t give a number of how long it would have taken him to pay off his credit cards. “It had ballooned to close to $25,000,” he says. “If we’re looking at the estimates on the credit card statement and making minimum payments was probably well over 30 years to pay off.”

Debt reduction options are available

For Francis, the best solution to his credit card woes was working with MMI to create a debt management plan (DMP), through which nonprofit credit management companies like MMI negotiate with credit card issuers to cut interest rates and set up a monthly payment that fits the client’s budget.

Once a monthly payment is set, clients send their payments directly to the credit counseling agency, which then makes payments directly to card issuers. A high credit score isn’t needed to enroll in a DMP, according to MMI, and the plans can take up to five years to complete, thanks to lower interest rates negotiated by the agency based on the client’s particular circumstances.

It took time, but with MMI’s help, Francis was able to stem the flow of his financial bleeding and pay off his credit card debt. If you’re in a similar position, seeing a growing balance on your credit card statement with no end in sight — and no plan to whittle it down — can feel intimidating and overwhelming.

But there are steps you can take that help you get back into good financial shape. Beyond working with a partner like MMI, they include:

No matter what option(s) you choose, it’s important to establish a new budget that allows you to spend within your means and ensures you don’t get back into the same situation.

The bottom line

Credit card debt is at an all-time high, at around $1.21 trillion in the fourth quarter of 2024, according to the Federal Reserve Bank of New York. Credit card balances have risen 51 percent since early 2021, and are now $240 billion higher than just before the pandemic, reports the Treasury Department.

Those who continue to struggle while making minimum credit card payments face several scenarios. You can ignore the growing balance and continue to only make minimum payments. You can apply for new cards to cover expenses, such as a 0 percent balance transfer credit card with a long repayment term and hope you can pay it off before the term ends. You can also apply for a debt consolidation loan or seek the help of a credit counseling agency or a financial advisor.

Reflecting on his experiences, Francis says he wished he had understood the implications of how interest grows. “You get to the point where you put groceries on a card, and it was only $60, but you end up paying $300 for those groceries because of the interest,” he says. “So you can see the implications of that interest and the effect of it on your credit score.”

If you’re in the same position, there are resources available to get you back on the road to financial success, and you shouldn’t be ashamed to ask for help. Francis’ personal story shows that there is life after paying down your credit card debt — even if it takes a few tries before it sticks.