The hidden danger of minimum credit-card payments: How much debt can they cost?

The minimum payment can look like a short-term relief for Argentine credit-card users who cannot cover their full monthly statement. Its main danger is that the unpaid balance does not disappear. It moves into the following month with interest.

Banks offer the minimum payment as the lowest amount a customer can pay while keeping the account current. Paying it on time avoids a recorded delay or a card block, but it does not settle the debt. The amount usually represents about 5% to 10% of the total balance, although the percentage depends on the bank and the customer's spending.

The problem grows when customers rely on the option month after month. The debt becomes larger and the costs rise significantly. Banks therefore recommend paying the entire statement, or at least more than the minimum, to prevent interest from accumulating into a much heavier balance.

The interest charged depends on the bank, the total debt and the amount of the minimum payment. Argentina's Central Bank, known as the BCRA, says the penalty rate cannot exceed the compensatory rate by more than 50%. The compensatory rate used to finance purchases cannot exceed by more than 25% the rates the bank applies to unsecured personal loans.

The BCRA also advises customers to read the conditions attached to promotions and benefits offered by banks. That information can help them avoid the problems associated with repeatedly financing unpaid card balances.