Tempting as it may be to spend on your credit card and only pay back the minimum each month, this could potentially cost you hundreds of pounds in interest.
The minimum payment is the sum you have to pay each month to keep within the terms of your credit agreement. However, you can, and should, aim to pay more than this to cut the amount of interest you pay.
Find out more about how minimum payments are calculated and why you should always try to pay more than this each month.
What is a credit card minimum payment?
A credit card minimum payment is the absolute minimum you can pay on your credit card each month. Depending on your balance, it can be a relatively small amount, but the exact sum will depend on the provider and your outstanding balance.
It is important to remember, that even if you have a 0% interest card, you still have to make a minimum repayment each month.
If you don’t pay this minimum amount, you may incur penalty fees, lose any promotional offers (such as a 0% interest rate), and damage your credit score.
Even though it can be tempting to just make the minimum payments on your card, if you do this you are likely to be in debt for longer and pay more money in interest overall.
» MORE: How do credit cards work?
How much is the minimum payment on a credit card?
Minimum payments on your credit card will be at least 1% of your total balance, plus the interest for that month and any other default charges on your card.
However, providers may charge more than this and calculate minimum payments in different ways.
For example, they may set the minimum payment at around 3% to 5% of your credit card balance, plus interest and any fees.
Providers may also set a fixed minimum monthly payment. This can vary between providers, with some requesting as little as £5 while others may want up to £25.
Typically, you would need to pay whichever is higher out of the percentage of your outstanding balance (plus any extra fees) or the minimum fixed payment.
So, for example, if your balance is £1,000 and the minimum payment is either 4% of your total balance (£40) or £25, you would pay £40 as this is the larger amount.
Bear in mind that if your total credit card balance is smaller than the minimum payment, you would need to pay off your remaining balance in full.
If you don’t use your card any more and just make your minimum payment each month, your minimum payments could decrease if they are charged as a percentage of your balance. While this may be appealing, just paying this minimum is likely to be an expensive and time-consuming way to clear your debt.
How can I find out the minimum payment on my credit card?
When you get your monthly credit card statement, it should show what you’ve spent on the card that month, what your balance is, what the minimum repayment is and when you have to pay it to avoid late fees. You can normally find the minimum amount you need to pay in the summary box.
If you have any doubt over what the minimum payment is or what the payment deadline is, you should contact your credit card provider.
Should I pay more than the minimum payment?
If you can afford to, you should always try to repay more than the minimum payment.
If money is particularly tight one month, you may only be able to pay the minimum. This is much better than not paying anything at all, but you should always try to pay off as much of your credit balance as you can whenever possible.
Only making the minimum repayments may be appealing, but you will be charged interest on the outstanding credit card balance (unless you have a 0% deal). This means simply paying the minimum payments won’t help you to clear your debt quickly and it will cost you, as this example shows.
Credit card balance: £1,000
Credit card interest rate: 19.9%
Minimum payment: £30
Assuming you don’t spend any more on the card, don’t incur any extra fees, your interest rate stays the same and you don’t have a 0% deal, it could take approximately four years to pay off your card if you only pay the £30 minimum payment. You would also pay over £400 in interest.
You may end up paying even more in interest and take even longer to clear your debt if your minimum payment decreases over time as your outstanding balance reduces.
If, however, you doubled your monthly payment to £60, you would pay off your credit card in just under two years and pay less than £200 in interest.
So, paying more than the minimum payment will help you to pay less interest and clear your debts faster.
Of course, the quickest and cheapest way to pay off your credit is to clear your balance in full every month as you won’t need to pay any interest charges at all.
Can a balance transfer help?
If you’re paying interest on your credit card, you may want to consider a 0% balance transfer credit card. This would allow you to move debt from one card to a balance transfer card that won’t charge any interest for a limited period of time (as long as you stick to the terms of the card).
This could help to make your payments more manageable and prevent your credit card debt from growing further.
» MORE: What is a balance transfer credit card?
You need to pay a fee to transfer a balance and you will still need to make minimum payments on the balance transfer card. You would also need to make sure that you repay the balance in full before the 0% period ends, otherwise you could face high interest charges.
Your eligibility for a balance transfer card will depend on your credit score and your individual circumstances.
What if I only make the minimum payments?
If you only make the minimum payments on your credit card, it could take you a long time to clear your balance. Interest charges would also build up and, if you continuously pay just the minimum, you may find yourself paying more towards interest charges than towards paying off your balance.
If you end up paying more in interest and other charges than you repay on your credit card balance over 18 months, you would be classed as being in “persistent debt”.
At this point, rules set by the Financial Conduct Authority (FCA) require your credit card provider to contact you to warn you of the possible risks of continuing to only pay the minimum amount.
The credit card provider will recommend you increase your payments and, if you can’t afford to, you should contact them to work out the best solution to get your account back on track.
If you receive a letter saying that you’re in persistent debt, it may be worth getting some help and advice on your situation.
Does making just the minimum payment affect your credit score?
It might do or it might not. On the one hand, if you’re paying the minimum payment on your credit card and your outstanding balance is relatively low in comparison with your credit limit, your credit score might remain unaffected as you’re keeping to the terms of your credit agreement and making your payments on time.
However, if you don’t pay more than the minimum payment for an extended period of time, and your balance is nearer to your credit limit, there’s a greater chance that your credit history could be affected.
Minimum payments won’t help to reduce your credit card debt quickly. So if you are using a relatively high proportion of your credit limit, and this is barely decreasing, lenders might think you’re finding it difficult to repay what you owe. This could have a negative impact on your credit score.
What if I can’t afford the minimum payment?
If you can’t afford to make the minimum payment on your credit card, you need to speak to your credit card provider as soon as possible. They may be able to help by arranging a temporary repayment solution, such as reducing your payments or freezing the interest on your card.
If you don’t tell your provider and you miss the payment, you’re likely to face a late payment fee. The missed payment may be recorded on your credit report, which could damage your credit score.
If you are struggling with your bills, you may want to seek help from a debt charity or consider getting a debt management plan.
» MORE: How to find debt help
Dive even deeper
Do I Need a Credit Card?
by Ceri Roberts
Can You Apply For A Credit Card With Bad Credit History?
