What is a credit card minimum repayment?
When paying off your credit card, you may choose to pay off all or part of your balance, but irrespective, you will be required to make a minimum repayment each statement period. Here, we explain how this works, as well as some potential pitfalls to look out for.
What is a credit card with minimum repayments?
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 $10 to $25 or 2% of the amount owing, whichever is higher.
What happens if you only pay the minimum amount due?
By paying the minimum repayment amount of your credit card, 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 17.07% and minimum repayments of $10 or 2% of the amount owing (whichever is greater), and as you may see below, making only minimum repayments can end up being costly.
Credit card debt costs using minimum repayments
Amount owing | Time to pay off debt | Total repaid |
---|---|---|
$2,000 | 26 years and 4 months | $5,900.19 |
$5,000 | 38 years and 11 months | $15,942.87 |
$7,000 | 43 years and 7 months | $22,637.96 |
$10,000 | 48 years and 5 months | $32,680.63 |
$15,000 | 54 years | $49,418.41 |
Source: www.canstar.com.au – 17/01/2024. Based on personal unsecured credit cards on Canstar’s database with minimum repayment of $10 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.
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Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular credit card product. If you decide to apply for a credit card, you will deal directly with a financial institution, and not with Canstar. Rates and product information should be confirmed with the relevant financial institution. For more information, read Canstar’s Financial Services and Credit Guide (FSCG), detailed disclosure, important notes and liability disclaimer. Products displayed above that are not “Sponsored or Promoted” are sorted as referenced in the introductory text and then alphabetically by company. Canstar may receive a fee for referral of leads from these products. See How We Get Paid for further information.
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.
Find out more about financial counselling
Original article by Tamika Seeto. Cover image source: Konstantin Kolosov/Shutterstock.com
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This article was reviewed by our Editor-in-Chief Nina Rinella before it was updated, as part of our fact-checking process.
Alasdair Duncan is a Senior Finance Journalist at Canstar, specialising in home loans, property and lifestyle topics. He has written more than 200 articles for Canstar and his work is widely referenced by other publishers and media outlets, including Yahoo Finance, The New Daily, The Motley Fool and Sky News. He has featured as a guest author for property website homely.com.au.
In his more than 15 years working in the media, Alasdair has written for a broad range of publications. Before joining Canstar, he was a News Editor at Pedestrian.TV, part of Australia’s leading youth media group. His work has also appeared on ABC News, Junkee, Rolling Stone, Kotaku, the Sydney Star Observer and The Brag. He has a Bachelor of Laws (Honours) and a Bachelor of Arts with a major in Journalism from the University of Queensland.
When he is not writing about finance for Canstar, Alasdair can probably be found at the beach with his two dogs or listening to podcasts about pop music. You can follow Alasdair on LinkedIn and Twitter.
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