Credit card minimum payment calculation uses percentage brackets set by banks. This system aims to make repayment of total card balances more flexible and to provide convenience to customers. On average, the minimum payment for credit cards is calculated as about one third of the outstanding balance. In earlier years, the minimum payment rate was determined according to the card limit. Today, the standard rate for the minimum payment is 30%. However, this standard applies to cards older than one year. For cards issued less than a year ago, the minimum payment rate is higher: newly issued cards have a minimum payment rate of 40% for the first year.
Is It Possible to Pay Only the Minimum Amount Continuously?
It is possible to pay only the minimum credit card payment continuously. There is no legal restriction preventing cardholders from paying only the minimum amount each month. However, consistently paying only the minimum carries several disadvantages.
If a person always makes only the minimum payment, the consequences include:
- Interest continues to accrue on the remaining balance after the minimum payment is made. This interest increases the number of installments required to fully repay the debt.
- Remember that paying only the minimum reduces the available credit by the remaining balance. As a result, the usable credit limit decreases and access to the card becomes more restricted.
- The cardholder’s credit score may decline. A lower credit score can harm future credit applications.
What Happens If the Credit Card Debt Is Not Paid?
Failure to pay credit card debt can have many negative consequences for the cardholder. Unpaid card debt can cause problems ranging from a falling credit score to accumulated interest and legal proceedings.
Consequences of not paying a credit card include:
- If credit card debts are unpaid for three months, the card will be closed for cash advances and purchases, and legal follow-up proceedings will be initiated.
- Late payment interest is charged when credit card debts are not paid, which increases the outstanding balance. In some cases, interest may also be applied to any subsequent purchases made on the remaining balance.
- If the cardholder did not list family members as guarantors when applying for the card, those family members will not be affected by the unpaid debt.
- Even if the outstanding debt is paid and a blocked card’s total debt is settled, it is not guaranteed that the card will be reactivated. The decision to reopen a card after closure due to debt is up to the bank.
How Much Late Payment Interest Is Charged on Credit Card Debt?
The late payment interest rate applied when a credit card balance is unpaid differs depending on whether it applies to the minimum payment or the total period balance. Since April 2020, the maximum late interest rate on the card minimum has been set at 1.55% monthly. For the total period balance, the maximum contractual interest rate applied is 1.25% monthly. This contractual rate is the highest interest rate applied for transactions such as cash advances from the card.
Can Wages Be Garnished Because of Credit Card Debt?
Garnishment can be applied due to unpaid credit card debt. However, garnishment does not cover the full salary. Garnishment cannot legally seize more than 25% of wages for credit card debt. If more than 25% of your salary or the full salary is garnished because of card debt, you should apply to the Enforcement Office and file an objection. Following a successful objection, garnishment that exceeds the legal limit will be removed.
Keep in mind that, in the event of unpaid credit card debt, the debtor’s or guarantor’s real estate or bank accounts can be subject to seizure regardless of the amount owed. The size of the debt does not prevent enforcement actions against property or accounts belonging to the cardholder or any guarantor.
As noted above, family members are not affected by a cardholder’s unpaid debt unless they acted as guarantors on the application. If family members served as guarantors, they may be subject to enforcement. If no guarantor relationship exists, family members are not held liable for the cardholder’s debt.
After How Many Months Does Legal Proceedings Start?
Legal proceedings are initiated if the cardholder fails to make payments for three months. During this period, at least the minimum payment should be made. If no payment is made within three months, the card is first blocked for use and then legal follow-up begins. Once legal proceedings start, attorney and enforcement costs are added to the cardholder’s debt. Cardholders have room to negotiate with the creditor regarding repayment terms.
How Does Nonpayment Affect the Credit Score?
Nonpayment of credit card debt significantly harms the cardholder’s credit score. Even a single-day delay in payment is recorded as a late payment in the system and will negatively affect the credit score. Credit and card repayment performance are among the most important factors used to calculate credit scores. Therefore, simply paying off the total card balance will not immediately restore a damaged score. To rebuild credit, borrowers need to resume responsible credit behavior and make all card and loan payments on time.
If I Pay My Total Debt, Will the Card Be Reopened?
If you pay your total card debt, there is a possibility the card could be reactivated. However, paying the total balance does not guarantee reactivation. The decision to reopen the card is entirely at the bank’s discretion. Banks assess your repayment history, past credit performance and other credit-related factors when making this decision. Therefore, making payments, and at minimum meeting the minimum payment, is important for maintaining credit options.