What is the minimum payment on a credit card? Watch out for minimum payments


What is the minimum payment on a credit card and how long will it take to clear you credit card debt if you only make the minimum payments?

Q. What is the minimum payment on a credit card?

A. The minimum payment is the minimum amount you have to pay your credit or store card company each month in order to keep to the terms of the agreement. If you don’t make the minimum payment you could be charged fees and you could lose any preferential rates. For example, if you’ve transferred a balance to a 0% credit card deal, you’ll be charged the standard rate if you miss a minimum payment.

If you miss several minimum payments, you could find your credit card agreement is in ‘default’, which means your card could be taken away from you and you could be asked to repay your credit card debt in a relatively short period of time.

Q. How much is the minimum payment?

A. The amount of the minimum payment varies between credit card providers and between credit cards and store cards. If you have a credit card the minimum payment may be 1% of the balance plus any interest and charges, or it could be a more straightforward figure, such as 2.5% of the overall balance.

There’s normally a minimum figure of £5, so if your credit card balance is quite low and you only pay the minimum, you’d never pay less than £5.

If you have a store card, the minimum payment is typically 4% of the amount you owe. The reason that it’s higher is because the interest rate on store cards is typically higher (often 29% compared to 18% or 19% for credit cards). Generally, the credit limit on store cards is much lower as well so paying 4% of your balance could be a lower amount than 2.5% of your credit card balance.

Q. Where is the information about the minimum payment?

A. Your monthly credit or store card statement will tell you how much the minimum payment is in pounds and pence and when you have to make this payment by.

Q. How quickly will my credit card balance be paid off if I pay the minimum?

A. The figures are quite horrifying! I’ve just used a brilliant Card Costs calculator produced by the UK Cards Association. I’ve assumed that I owe £1,000 and that the card charges 18.9%, and that I won’t spend any more money on the card. I’ve also assumed that the minimum payment is 1% of the balance plus interest and charges.

The card calculator tells me it would take over 18 years to pay off the card. 18 years! That’s almost as long as a mortgage! Worse still, I’d pay over £1,250 in interest, which is more than the original amount I’d borrowed. If you owe £2,400 and pay the minimum on a card charging 18.9% interest, it would take you roughly 25 years to clear the debt – exactly the length of a standard mortgage. You’d have paid back £3,300 in interest.

Q. I can’t afford to pay off my credit card debt in one go, so should I pay the minimum in the meantime?

A. No! If you can’t afford to clear your credit card debt in a couple of months, pay what you can. Even a relatively small increase will make a big difference. For example, if you pay an extra £25 a month on a £1,000 debt with a card charging 18.9% interest, you’d clear the debt in just two years and 10 months rather than 18 years. That’s over 15 years debt free!

Find out how quickly you could pay off your credit card debt with the Card Costs calculator.

Related articles:

Interest you may be charged on your credit card debts

Store card tricks – why store cards aren’t a girl’s best friend

10 things you need to know about your credit rating

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