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Your credit card s minimum payment amount

We ve updated this article because the minimum monthly repayment we calculate will change from 1 April 2014.

Don’t fall into the trap of thinking that your minimum credit card payment amount is enough to avoid interest charges. Or thinking you ll get your balance down to zero quickly if you keep paying the minimum every month. While only making a minimum payment can give you the flexibility to make purchases and could be useful for a short period until you can pay off your card balance, it is only the bare minimum you have to pay to meet the obligations of your credit card’s contract.

What making your total minimum payment does

Making the total minimum payment each month means you avoid a late payment fee and ensures you can keep using your card. The terms of your contract require you to pay this minimum amount, otherwise we can put a block on your card to stop you from using it. If you’re struggling to make the minimum payment, talk to us as soon as possible to see how we can help you.

What making your total minimum payment doesn t do

Paying the minimum amount doesn’t stop us from charging you interest. If you only pay this amount you’ll be charged a month’s worth of interest calculated on your balance each day for that statement period. You will also lose your interest-free days for the next statement period, meaning interest charges will keep adding up.

And if you didn’t pay your balance in full last month, you could now be paying interest on interest. This could happen if, say, you’re away on holiday and you forgot to pay it in full.

Making the minimum payment also doesn’t help you pay off your credit card quickly. In fact, only paying the minimum amount each month means it could take you a really long time to pay it off. Even if you’ve reached your credit limit and stop using it for purchases, the interest keeps building so a minimum payment only reduces your debt a little.

Let’s say you have a credit card debt of $1,000 at an annual interest rate of 18%. If the minimum payment is set at 2% of the card s closing balance and that’s all you pay each month, it will take you just over five years to pay it off, at a total cost of around $539 in interest. And that’s only if you don’t make any new purchases or cash advances on the card. It doesn’t include the annual fee, either.

But if you committed yourself to paying $100 on your card each month, it could only cost you $74 in interest and you’d have paid it off in 11 months.

While only making minimum payments can be useful for short periods to give you some flexibility, as you can see it is important to have a plan to reduce your balance. You might work out a savings plan to reduce it over several months or maybe you know that you will have some extra money coming in to pay off your whole balance at once, like tax time or when you get your bonus each year.

How we work out your monthly payment

We work out your monthly payment by looking at your closing balance on your card this month:

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