Racking up a large sum of debt on your credit card is easily done but paying it off with the minimum repayments is not.
Minimum repayments are the minimum amount you are required to pay off your credit card balance. The minimum repayments are calculated as a percentage of the total balance outstanding on your credit card. This amount is usually set around two percent, however depending on your balance if you were to pay only the minimum amount it would take you years to pay off.
While making a minimum payment will allow you to avoid late fees, card terminations and will give you more time, that's about all it will do. It's not enough to avoid interest charges or to get your balance down to zero anytime soon.
What happens if I only pay the minimum?
- Even if you pay the minimum amount you will still get charged a month’s worth of interest. This is calculated on your balance each day for that statement period.
- You will lose your interest free days for the next month.
- You could wind up paying interest on interest if you fall behind on another month.
- It will take you a really long time to pay off your debt and wind up costing you a lot more.
To pay off your credit cards sooner, try and pay more than the minimum repayment required or make the most of the interest free period (if applicable with your credit card) and pay the total balance off each month to save more.
If you want to save more in interest on your credit card, the table to the right features some of the best balance transfer credit cards available.