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Paying the lowest monthly repayment off your credit card sounds simple. After all, it’s the minimum amount of money your provider requires you to pay, and the dollar amount is easily found displayed on your monthly credit card statement. 

However, if you only pay the lowest monthly repayments you could end up with a much larger debt that will take you years to pay off. 

How is the lowest monthly repayment calculated on a credit card?

As a rule of thumb, credit card providers will set the lowest monthly repayment to about 2-3 per cent of the outstanding balance. Added to this will usually be any interest due for the month and possibly part of the annual fee - if there is one. 

How long will it take to pay off my credit card with the lowest minimum repayments?

The time it takes to pay off your credit card debt if you make the lowest minimum repayments will depend on your interest rate and the amount owing. 

The minimum repayment amount should cover all of the interest, and also part of the money you owe. Every month the same calculation is made. However, as your debt balance reduces, so does your lowest monthly repayment. This means that even if you have a small debt, it could take several years to pay off.

CASE STUDY - Sophie

Sophie has a credit card debt of $500 on a card charging an interest rate of 17 per cent.

If she only made minimum repayments it would take her 2 years and 8 months to pay off the balance, and she’d end up paying $622 in total.

While this may not seem that long, the extra $122 paid in interest is easily avoidable by making more than the minimum monthly repayments. 

CASE STUDY - Jeremy:

Jeremy has a credit card debt of $3,000 on a card charging an interest rate of 18 per cent.

If he only made minimum repayments it would take him 22 years and 3 months to pay off the balance, and he’d end up paying $8,383 in total.

Not only will Jeremy end up paying over double his initial debt in interest alone, but it will take him a ridiculously long time to pay it off. He should consider making more than minimum repayments to reduce this. 

If you’re looking for a credit card repayment calculator, head to ASIC’s MoneySmart website to find how long it will take to pay off your card with only minimum repayments and/or how much time and money you'll save by making higher repayments.

How much will lowest minimum repayments cost me over time?

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Making the lowest minimum repayments on your credit card debt can significantly cost you in interest over time. 

Debt owing

Interest rate

Time to pay off debt

Total cost over time

$1,000

17%

7 years 4 months

$1,751

$2,000

17%

16 years 9 months

$5,067

$5,000

17%

29 years 2 months

$15,015

$10,000

17%

38 years 7 months

$31,595

$15,000

17%

44 years 1 month

$48,176

$20,000

17%

48 years

$64,756

How can I reduce my credit card debt faster?

Even if you have only a relatively small amount owing on your credit card, it can take an extraordinary long time to pay off if you make only the lowest monthly repayment. 

To avoid paying a huge amount in interest, here are some steps you could take to get on top of your credit card debt: 

  1. Pay as much as you possibly can above the minimum payment. Anything extra you can pay each month that’s more than the lowest payment will go directly to repaying what you’ve borrowed. This means your debt will be repaid faster and will end up costing you a lot less in interest. 
  1. Try to avoid putting any more purchases on the credit card. If you keep paying for goods and services with your credit card, your debt will increase, as will the time it’ll take you to pay it off.
  2. Consider transferring your debt to a balance transfer credit card. Zero per cent balance transfer credit cards are a competitive option if you’re having trouble paying anything more than the minimum payment. This is because every dollar you pay goes straight to repaying the debt, not interest. RateCity also has a balance transfer tool to help you compare the cards currently on offer.

Does having credit card debt hurt my credit score?

Your credit score is determined by a number of factors, a lot of which are unknown. However, it is clear that carrying a lot of overdue debt can hurt your credit score and your ability to get approved for any further financial products. Be sure to pay your bills on time by setting up payment reminders through your banking portals or personal devices.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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