How Does 3 Become 13? New Credit Card Statements Could Confuse

New rules require credit card companies to print on monthly statements the amount you must pay each month in order to pay off your debt in 3 years (assuming you don’t make more charges and the interest rate doesn’t change–good luck with that!) But each month the credit card company recalculates the 3 year payment amount based on your current balance. If each month you pay what is printed on your statement that month, you may be surprised that in 3 years your balance will still be FAR from paid off!! If you want to pay off your entire debt in 3 years, you should pay what is listed on the very first statement you receive, and ignore the future (lower!) numbers.

Here is an example.The minimum payment calculation is based on an example minimum payment calculation method found on one of my credit cards. To see the details of the calculation, click the “Calculations” worksheet on the Excel file below. One notable item in the Calculations is that eventually you are forced to pay the minimum payment (since it is more than the 3 year payment amount would be). So paying the 3 year payment amount as printed each month can be thought of as a hybrid of paying the minimum payment and paying a bit more. Or as my friend Kristy Prattini noted, each statement extends the three years by another 30 days.

This payment assumes a $10,000 initial balance with an APR of 8.24%.

Payment Method Months to payoff Years to Payoff Total Interest Paid Remaining Balance after 3 years
Pay only the minimum payment 258 21.5 $5,008.15 $6,213.05
Pay 3 year payoff amount as listed each month 159 13.3 $2,723.33 $4,398.65
Pay 3 year payoff amount listed on FIRST statement 36 3.0 $1,320.98 $0.00

Download the Excel file I made and try it for yourself. Just change the two values on the “Summary Data” Sheet to the balance and interest rate you’d like to use. Click the “Calculations” sheet to see all the details.