Drowning in credit card debt? Why making only the minimum payment could cost you thousands — and how to stop drowning in debt

Millions of Canadians only make the minimum payment each month on their credit cards, and carry the remaining balance into the next month — and into the next year and beyond. This may be due to poor financial planning or to the widely-held but erroneous belief that making the minimum payment can quickly improve your credit score.

In reality, there’s no evidence that making only the minimum credit card payment improves a credit score more rapidly than paying off the whole balance each month. Furthermore, paying off credit cards in full offers several benefits for your personal financial health, while making only the minimum payment can lead to major financial difficulties over the long run.

Why pay off your balance in full?

You’ll have a better Total Payment Ratio (TPR)

TransUnion — one of the two major credit bureaus in Canada, along with Equifax — looks at how much you pay over your minimum. It calls this measure the Total Payment Ratio (TPR), calculated by dividing your total monthly credit payments by the total minimum due across all your credit products (2). Research from TransUnion shows that a higher TPR (paying more than the minimum) is linked with a lower risk of falling behind on your debts.

The reason this metric is important for the credit bureaus is that their research has shown that a lower TPR correlates with a higher risk of delinquency on credit. If you go above your minimum payment and improve your TPR, your credit score will go up and you’ll get the best interest rates on credit cards, auto loans and mortgages. Quite simply, does your minimum payment affect your credit score? Yes.

You’ll have a better credit utilization ratio

Your credit utilization ratio measures how much debt you carry in relation to your credit limit. So if you have a $3,000 credit limit on all your cards combined, and carry $1,200 of combined debt on said cards, your utilization ratio is 40%.

The utilization ratio is one of the most important factors credit bureaus use to determine your credit score, and it’s generally recommended not to have a utilization ratio above 30%. So, even if you can’t pay off your balance entirely, pay it down as much as you can in order to get below that utilization threshold.

You’ll pay less overall

When you pay off credit card debt fast, you’re doing more than just improving your credit score. You’re also reducing the debt you’ll accumulate long term.

The average Canadian now carries roughly $22,000 in non-mortgage debt, according to recent Equifax data, and that number has been edging higher through 2024 and 2025 (1). For every month you carry a credit card balance, interest gets added on top, making it harder to pay down what you owe. If you only ever make the minimum payment, you may barely reduce the principal — and your total debt can quietly grow over time. For every month that you carry a balance on your credit card, that balance grows because interest is added. Depending on the size of your balance, making only the minimum monthly payment might mean only paying the minimum on a credit card and paying off part of the interest itself, while the principle keeps growing more and more interest from month to month. If this cycle continues, your debt could end up ballooning out of control.

You’ll live a better, less stressful life

The stress of living with debt is real and often underestimated by borrowers. The stress of carrying debt is very real — and often underestimated. Financial stress is now a leading source of stress for Canadians. Recent surveys from FP Canada find that more than 40% of people say money is their top source of stress, and over half report that financial worries have had a negative impact on their life, including sleep problems and mental health challenges (4).

The Financial Consumer Agency of Canada also warns that ongoing money worries can contribute to sleep loss, higher blood pressure, anxiety, depressed mood and strain in relationships. Canada

If you notice you’re only making minimum payments, one practical step is to trim your monthly spending by even 10% and direct that amount toward your card balance. Once you’ve paid off your cards in full and you’re in a more comfortable position, you can shift those same dollars into a high-interest savings account or emergency fund instead.

What is the minimum payment on a credit card?

The minimum payment on a credit card is the lowest amount you can pay each month to keep your account in good standing and avoid late fees, typically calculated as a percentage of your outstanding balance or a fixed dollar amount, whichever is higher.

Should you ever make only the minimum credit card payment?

A common question with minimum payments is how much: 'should i pay off my credit card in full or leave a small balance?

Despite all the solid reasons to pay off your balance each month, there are some rare circumstances where it may make fiscal sense to make only the minimum monthly payments on your credit cards:

You’re not at risk of going over the 30% credit utilization ratio

If the limits on your credit cards are high enough, carrying a small balance from month to month may not push you over a 30% utilization ratio. Keep in mind that credit bureaus assess your utilization ratio by looking at your card balance on the day your credit card statement is issued each month. Making payments before the statements are issued can keep your utilization low in the eyes of the bureaus. Not harming your credit utilization ratio, however, is not in itself a good reason to not pay off your balance each month in full. Keep in mind that the major factor used by credit bureaus to calculate credit score is your payment history — it accounts for 35% — so you’ll damage your payment history and thus your score (even if you keep your credit utilization low) by not making full payments.

Your card has a low interest rate

Most standard rewards credit cards in Canada charge a purchase interest rate of about 19.99% to 20.99%, and some store or specialty cards can be higher. Bank of Canada data show the average purchase rate on outstanding consumer credit card balances was about 20.65% as of November 2024 (3). That means carrying a balance is expensive — and a “low-rate” or 0% promotional offer really is a big difference, as long as you pay the balance down before the promo ends. But if you have a credit card with a relatively low interest rate, or if you’re still in the 0% promotional interest rate period for a new card, your balance might not grow significantly from month to month as long as you spend responsibly.

More: Best balance transfer credit cards Canada

You need to keep some cash handy for emergencies

In the event of an unexpected crisis, divert the cash you would use to pay off your credit card and resolve the problem that’s immediately in front of you. Paying off your card balance each month is a sound financial goal, but it shouldn’t be prioritized over your more immediate housing, health or safety needs. In the meantime, start to build up an emergency fund, which can provide peace of mind and help you deal with unforeseen challenges without making your current financial situation worse. Once the immediate crisis is resolved, you can refocus on paying off your credit card balance and maintaining your long-term financial health.

You have multiple debts with various interest rates

If you have more than one credit card, or if you have credit cards and other forms of debt (e.g. personal loans), you should prioritize paying off the debt with the highest interest rate first. It may feel good to pay off two credit cards with 10% interest rates, but don’t take care of those at the expense of a loan with a 23% interest rate, it’ll end up costing you in the long run.

If you fall into one of the above categories, periodically re-evaluate your budget to see if you can move away from making the minimum payment and start paying off credit cards in full. If your credit cards and loans have high interest rates, consider transferring all the balances onto one card with a low interest rate. Just note that the low interest rate on a balance transfer card will likely expire after a period of time — typically within six months to a year. Use the temporary low-interest period to make large monthly payments, pay off your credit card debt in full and start fresh with a clean financial slate.

Other financial strategies for paying off credit card debt

If you can’t pay off your credit card balance in full and are looking for other debt-paying strategies other than to just make your minimum payment, here are some quick tips:

• Debt avalanche method vs debt snowball method: The avalanche method is when you pay off the highest interest rate debts first versus the snowball approach, which is when you pay off your smallest balances first and enjoy small victories to stay motivated. Decide which method of tackling debt works best for you. While you can save more money doing the avalanche method, some people need quick wins to feel encouraged to continue paying off debt
• Debt consolidation: This is when you combine debts into a single lower-interest loan or credit card balance transfer. The idea is to get a lower rate of interest for the one loan than you would with a mix of different loans. One big loan is also easy to keep track of and thus easier to pay down.
• Instalment plans: Some credit card companies in Canada have started to offer instalment plan options that allow you to break down payments into smaller, more manageable amounts. Usually, to be eligible, purchases will need to be a minimum amount (like $100) and can be broken up into set periods like three, six or 12 months. You will be charged a variable fee, but often you won’t be charged interest (be sure to read the fine print of your specific card) and often the fee can be less than you would have paid in interest.

Bottom line

Making the minimum payment on your credit card versus paying off the full balance is a crucial financial decision with far-reaching implications. While the minimum payment might seem like an easy short-term solution, it can lead to long-term financial challenges. Paying your credit card balance in full each month offers several advantages: it improves your Total Payment Ratio (TPR), maintains a healthy credit utilization ratio, saves money on interest charges, and reduces financial stress. On the other hand, making only minimum payments can result in prolonged debt, higher interest charges, potential negative impact on your credit score, and reduced financial flexibility.

It's important to understand that consistently making minimum payments barely covers the interest, making it difficult to reduce the principal balance. This approach can lead to paying significantly more in interest over time and may negatively affect your credit score due to high balances relative to your credit limit. While there may be rare circumstances where making only the minimum payment is necessary, such as during a financial emergency, it should not be a long-term strategy.

If you're struggling with credit card debt, consider options like the debt avalanche or snowball methods, debt consolidation, or exploring balance transfer cards with low introductory rates. Remember, your payment history and credit utilization ratio are crucial factors in determining your credit score. Consistently making full payments on time and keeping your balances low will contribute to a healthier financial profile in the long run.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Equifax (1); TransUnion (2); Nerdwallet (3); FP Canada 2025 Financial Stress Index (4)