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Canstar explains how minimum repayments on credit cards work – and how much your debt might cost if you only pay the minimum amount each month.
What is the minimum repayment on a credit card?
The minimum repayment on a credit card is the lowest amount you have to pay to meet your credit card agreement. If you don’t pay this amount by the due date, you will typically be charged a late fee.
The minimum repayment amount will differ depending on your credit card provider and your outstanding balance. However, financial institutions typically set the minimum repayment amount at $25 or 2% of the amount owing, whichever is higher. This is followed closely by the higher of $10 or 2% of the amount owing.
What happens if you only pay the minimum amount due?
By paying the minimum repayment amount, you will avoid a late payment fee; however, you will still be charged interest on your outstanding balance. If you continuously only make the minimum repayments, you may find that it takes you a long time to repay your credit card debt, as you will continue to be charged interest.
If you are able to pay off the total amount owing by the due date, you can avoid late payment fees plus interest charges. That’s because most credit cards have interest-free periods, such as up to 44 days or 55 days interest-free.
If I make minimum repayments, how much will my credit card debt cost?
In the example below, we’ve calculated the total potential cost if you only make the minimum repayment on your credit card each month. We’ve also calculated how long it could take you to pay off your credit card debt.
These calculations are based on a purchase rate of 16.97% (which is the current average purchase rate for personal credit cards on Canstar’s database) and minimum repayments of $25 or 2% of the amount owing (whichever is greater).
Credit card debt costs using minimum repayments
| Amount owing | Time to pay off debt | Total paid |
|---|---|---|
| $2,000 | 8 years and 3 months | $3,314.55 |
| $5,000 | 12 years and 11 months | $8,920.20 |
| $7,000 | 14 years and 8 months | $12,657.16 |
| $10,000 | 16 years and 5 months | $18,262.50 |
| $15,000 | 18 years and 6 months | $27,605.31 |
Source: www.canstar.com.au – 09/11/2021. Based on average purchase rate for personal unsecured credit cards on Canstar’s database of 16.97% and most common minimum repayment of $25 or 2% (whichever is greater).
As you can see, simply making the minimum repayments can be costly in the long run and it can take you a significant amount of time to pay off your debt. If you can, it’s best to repay as much of your balance as quickly as possible, as this may reduce the amount of interest you are charged and the overall cost of your credit card.
Consider comparing credit cards and seeing if you can switch to one that better suits your needs. For example, if you are unable to pay off your balance in full each month, see if you can find a credit card with a lower interest rate and low fees. It’s a good idea to always read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) if you are considering a credit card.
Compare credit cards with Canstar
If you’re currently comparing credit cards, the comparison table below displays some of the low interest credit cards currently available on Canstar’s database for Australians looking to spend around $2,000 per month. Please note that this table features links direct to the provider’s website, and is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards.
You could also take a closer look at your budget and see if there are any areas you may be able to cut back on and use these savings to pay off your credit card balance. Check out our simple guide to making a budget.
If you are finding it difficult to meet your repayments, contact your credit card provider and see if you can reach a financial hardship arrangement. You can also speak to a financial counsellor for free by calling the National Debt Helpline on 1800 007 007.
Cover image source: Konstantin Kolosov/Shutterstock.com
This content was reviewed by Editor-in-Chief Nina Rinella as part of our fact-checking process.
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