How is the minimum payment typically calculated on a credit card?

The minimum payment on a credit card is typically calculated as a percentage of the total balance owed, which usually falls within the range of 1% to 4%, with 3% being a common figure. This method ensures that the payment is proportionate to the overall amount the cardholder owes, allowing them to gradually pay down their debt while also covering any interest that may have accrued since the last billing cycle. By using a percentage of the total balance, credit card companies help to establish a minimum payment amount that can adjust according to the cardholder's balance, making it more manageable for them over time.

This calculation method differs from fixed dollar amounts, which would not account for changes in the balance, or correlations with interest rates, which may affect the total cost of borrowing but do not typically dictate the minimum payment itself. Additionally, calculations based solely on total balance plus fees would likely not provide a consistent payment plan, as fees can vary widely and should not be the sole factor in determining how much a consumer is required to pay monthly.