41% of Cardholders Have This Costly Credit Card Habit

For millions of Americans, credit card debt seems like an unavoidable part of their financial plan. Unfortunately, for many of them, the payments they make every month don’t actually represent any type of progress.

A recent survey conducted and published by LendingTree found that 41% of Americans typically pay only the minimum amount due on at least one of their credit cards. When it comes to Gen Z cardholders, those between the ages of 18 and 29, that figure jumps to 58%.

Paying the minimum isn't the same as missing a payment. It generally keeps the account current and helps avoid the immediate consequences associated with a late payment. But there's a major difference between keeping an account in good standing and actually getting out of debt.

Why the Minimum Payment Can Be Misleading

Your monthly credit card statements are designed to tell you how much you need to pay to keep your account current. Typically, that means that they show you the credit card minimum payment. They don’t show you how much you need to pay to eliminate the balance quickly.

The minimum payment is usually a relatively small percentage of what you owe, plus credit card interest and other amounts specified by the card agreement. That can make a large balance appear manageable because the required payment fits more easily into a monthly budget.

The problem comes from what happens after you make your credit card minimum payment. If you continue carrying the remaining balance, interest can continue accumulating. Then the next month's payment has to cover both the existing debt and the cost of borrowing.

The Numbers Can Get Ugly

According to the LendingTree survey, the average credit card balance in the US is $7,756. According to other reports, the average interest rate is 20.96%. When viewed together, those numbers show why making the minimum monthly payment is such a dangerous concept.

Using those figures, a borrower making minimum payments could potentially take nearly 27 years to eliminate the balance, while paying nearly $13,000 in interest along the way. That’s much longer than most people expect repayment to take when they see their credit card statement.

The Habit Appears to Be More Common Among Younger Cardholders

The LendingTree survey didn’t just focus on account balances and interest rates. It also examined how different age groups are managing their credit cards. Overall, 41% of cardholders said they typically pay only the minimum on at least one card. For Gen Z cardholders, the share rises to 58%. Among baby boomers, it falls to 19%. Experts agree that there are plenty of different reasons for that disparity.

Younger adults are typically earlier in their careers, have less accumulated savings, and may be dealing with a wide range of expenses, including rent, transportation, and education. When combined with the fact that they often earn less money, it makes it harder for them to pay more than the minimum amount on their monthly credit card statements.

Why Paying More Matters

The most effective way of paying off credit cards is to reduce the amount of time that you carry the debt. Carrying a credit card balance for three years results in you paying much more in interest than you would pay if you carried the balance for six months.

It’s important to understand that you don’t have to pay hundreds of dollars a month in extra payments to eliminate credit card debt. Adding $25, $50, or $100 to a payment can shorten the repayment period, depending on the balance and interest rate. The exact savings depend on the card’s APR, balance, and payment structure. Less outstanding debt generally means less interest accumulating over time.

A Credit Card Can Be Useful Without Being Debt

It’s easy to look at the findings published by LendingTree and assume that credit cards are bad and that using them cannot help you financially, but that’s simply not the case. When used correctly, credit cards can be useful financial tools. They can provide rewards, purchase protections, and a straightforward way to manage expenses. They can also help establish or maintain a credit history.

The problems come when you start using credit cards as a substitute for money that you don’t have. One person might charge $2,000 in expenses and pay the entire balance at the end of the month. Another might charge $2,000, make the minimum payment, and continue adding purchases. While the card is identical, the consequences are not.

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