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Making minimum repayments on your credit card

Making minimum repayments on your credit card

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.

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Learn more about credit cards

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.