Here's What Happens When You Pay Less Than the Minimum on Your Credit Card

When you use a credit card, you get a bill every month with a minimum payment amount. The minimum payment is either a percentage of your total bill or a fixed dollar amount, whichever is greater. On large balances, the minimum payment is normally about 1% to 2% of what you owe.

It's best to pay as much as you can on your credit cards to minimize interest charges. If you pay your credit card bill in full, you can avoid interest charges entirely. But what if you need to pay less than the minimum on your credit card? Here's what to expect in that situation.

The card issuer charges a late fee

If you don't pay the minimum on a credit card by the due date, you're charged a late fee. That remains true if you pay less than the minimum, because this doesn't meet your payment obligation. Credit card issuers can legally charge you a fee of up to $30 the first time you're late on a credit card payment. Each additional late payment can cost you up to $41.

The good news is that card issuers are usually willing to waive your first late fee. If you haven't paid late before, send the card's customer service center a message or call and ask about getting the late fee waived.

It could hurt your credit score if you don't get caught up

The most significant factor used to calculate your credit score is your payment history. Even a single late payment can knock over 100 points off your score.

Fortunately, your payment must be at least 30 days late to affect your credit score. That's when credit card companies can report a late payment to the credit bureaus.

So, even if you got charged a late fee because you paid less than the minimum, you have time to get caught up and prevent any damage to your credit score. If you pay the required amount 14 days late, it's still considered an on-time payment as far as your credit score is concerned. The key is to get caught up in less than 30 days from the original payment due date.

Your credit card's balance will probably go up

It takes years to pay off credit card debt when you only make minimum payments. When you pay less than the minimum, you likely won't make any progress at all on your debt. In fact, you'll probably even end up owing more the next month due to the cost of interest and fees.

Credit cards have high interest rates, with the current average being over 20%. And as explained earlier, the card issuer can also charge you a late fee of $30 to $41 for paying less than the minimum.

If you don't catch up on your payments, the consequences get worse

While paying less than the minimum on your credit card is never good, it's something you can fix by catching up on your payments. But if you continue paying less than required, it can lead to serious issues. Here's what will happen the longer you go without making your required payments:

• It will damage your credit score more and more. The card issuer will continue reporting your card as past due. As your card reaches 60 days and 90 days past due, it has a larger impact on your credit score.
• The card issuer may charge a penalty APR. This is a higher rate, and card issuers normally begin charging it when an account is 60 days past due.
• Your account could be closed and turned over to collections. If your account is past due for too long, the card issuer might close it and send it to collections. Card issuers usually do this with accounts that are 180 days or more past due.

What to do if you're having trouble making your credit card payments

If possible, do your best to at least pay the minimum on your credit cards. Get rid of any and every unnecessary bill, and see if you can pick up any extra hours at work. Paying the minimum keeps you current, which helps you avoid extra fees and damage to your credit score.

Dealing with significant credit card debt can be difficult. Here are a few options to consider if you're having a hard time making your payments:

• Debt consolidation: Get a debt consolidation loan with a low interest rate to pay off your credit cards. Balance transfer credit cards with a 0% intro APR also work well for this, as long as you can pay off the total balance before the promotional APR period ends.
• Negotiating your credit card debt: You could potentially set up a debt settlement agreement or a payment plan with the card issuer.
• Declaring bankruptcy: If you don't see a way to keep up with your debt payments, bankruptcy may be the only way out.

Hopefully, you don't find yourself in a situation where you need to pay less than the minimum on your credit card. But if you do, what's most important is adjusting your budget where necessary so you have the money you need to get caught up ASAP.