Why the minimum costs so much
Three numbers decide how long you stay in debt. Here is what each one does.
What you currently owe. Interest is charged on this amount every month it stays unpaid.
what you oweThe finance charge your card adds each month. The BSP caps this at 3 percent per month.
up to 3% monthlyThe least you can pay. Usually the higher of a percent of the balance or a peso floor.
the higher of the twoThe cost of paying the minimum
worth paying aboveThe minimum due on most Philippine cards is the higher of a percentage of your outstanding balance, often 5 percent, or a fixed peso floor, often ₱500, with any past-due amount added on top. This tool takes the higher of the percent and the floor each month. Because the minimum is set just high enough to clear the interest and a sliver of principal, most of an early payment goes to the finance charge rather than the debt.
Take a ₱50,000 balance at the BSP ceiling of 3 percent per month. The first month's interest is ₱1,500, and the 5 percent minimum is ₱2,500, so only ₱1,000 actually reduces the balance. As the balance shrinks, the percentage minimum shrinks with it, which stretches the payoff longer and longer. If the percentage minimum ever sits at or below the monthly interest rate, the balance stops falling and the result will say it never clears.
The way out is to pay a fixed amount each month instead of the shrinking minimum. Since interest is charged on whatever balance remains, every peso above the minimum goes straight to principal and trims every future finance charge, so the effect compounds in your favor. To see how the same idea works over a term loan, the loan calculator lays out the amortization, and the compound interest calculator shows the mirror image when growth works for you instead.
Questions people ask
answered in plain wordsOn most Philippine cards the minimum due is the higher of a percentage of your outstanding balance, often 5 percent, or a fixed peso floor, often ₱500, plus any amount already past due. This tool uses the higher of the percent and the floor each month.
The minimum is set just high enough to cover the interest and chip away at a little principal. Early on, most of your payment goes to interest, so the balance falls slowly. As the balance drops, the minimum drops with it, which stretches the payoff even further.
Check your statement for the monthly finance charge or add-on rate. The BSP caps credit card finance charges at 3 percent per month, so that is a common figure. Some cards charge less. The rate you enter should be the monthly rate, not the annual one.
It means the minimum payment for that month is not enough to cover even the interest, so the balance grows instead of shrinking. This happens when the percentage minimum is at or below the monthly interest rate. The only way out is to pay a fixed amount above the minimum.
A lot faster. Because interest is charged on the remaining balance, every peso above the minimum goes straight to principal and reduces every future interest charge. Paying a fixed amount each month, rather than a shrinking minimum, is the single biggest thing you can do.
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