All you need to know about minimum monthly credit card payments.
All you need to know about minimum monthly credit card payments.
When you spend on a credit card, you build up a balance that you’ll need to repay by making monthly repayments. You have some choice about the amount you pay but your card provider sets a minimum monthly payment. This is the lowest credit card payment you’re allowed to make.
If you fail to pay this on time, you could incur late payment fees, damage your credit score and lose any promotional offers you have.
Paying more than the minimum payment is a good idea. You’ll pay less interest overall and clear your balance sooner.
Your minimum payment depends on the size of your balance and your interest rate. It’s usually calculated as a percentage of your balance plus interest, fees and charges. This means it can change from month to month. If your balance is low, you may have to pay a fixed amount instead, if this is greater.
It varies between providers but it’s usually 1-2.5% of the outstanding debt plus interest and fees, or £5 to £25 (whichever is the higher).
Your credit card statement shows your minimum payment and when it’s due.
It’s a good idea to set up a direct debit to repay your credit card automatically. Even if you set your direct debit to pay just the minimum monthly repayment, you can still pay extra when you can afford to. You could do this online, in your banking app or at a branch.
Don’t worry – there are things you can do to help.
Avoid borrowing more as that’ll increase your minimum payment and may make it unaffordable.
Review your budget. Can you free up any extra money to put towards paying off your credit card?
If you have a good credit score, you might be able to switch your card to a 0% balance transfer card. During the promotional period on these cards, you won’t be charged interest and your minimum payment will fall. If you continue to pay the same as you were before, you’ll clear your balance faster.
One of the benefits of credit cards is that, providing you make the minimum monthly payment, you can choose how much to repay.
You can pay:
The minimum monthly repayment. This option keeps your monthly repayments to a minimum. But overall, you’ll pay more in interest, and it will take you longer to clear your debt than the options below.
A fixed monthly amount (anything between the minimum repayment and the full balance). Although you’ll still pay interest (unless you have a 0% purchase or balance transfer card), you’ll pay off your debt faster and more cheaply than paying the minimum monthly payment.
Your full balance. This is the cheapest option. You won’t pay any interest on your purchases (although interest is usually charged for cash withdrawals).
Some of your minimum repayment is used to cover the interest, fees and charges that have been applied to your account. The rest reduces your card balance.
Under rules set by the financial regulator, your minimum monthly payment must cover at least 1% of the outstanding balance.
The rules also ensure your payments clear the most expensive debt on your card first.
If you only make the minimum monthly repayment on your card, your debt reduces slowly, and you pay a lot of interest in the process.
For example, on a balance of £2,000 with an interest rate of 26% , it could take 25 years to clear your debt and cost a whopping £3,670 in interest.
It depends. It may not if the minimum payment covers all or most of your monthly balance. But if you’ve used a large proportion of your credit card limit and you only ever make the minimum repayments, lenders may see this as a sign you’re struggling. This could negatively impact your credit score.
Paying a little extra each month can significantly reduce the amount of interest you pay and clear your debt faster.
For example, say you owe £2,000 and the interest rate is 26%. You don’t make further purchases. The minimum monthly repayment is 1% of your balance (plus fees) or £5.
If you make the minimum repayment each month (this starts at £59 but goes down as your balance falls) it will take you 25 years and 3 months to repay your debt and cost you £3,670 in interest.
If instead you always pay £59 each month (even though it’s more than your minimum monthly repayment) you’ll pay off the debt in 4 years and 8 months and it will cost you £1,297 in interest.
You can find credit card repayment calculators online to see how paying off different amounts can affect how long it takes to pay off your debt and how much you’ll pay in interest.
You may be charged a late payment fee and interest on your late payment. A mark is also usually added to your credit file.
Talk to your provider straight away. Some offer a grace period (usually 14 days) to allow you to pay before they notify the credit reference agencies. And they may offer you a solution to help you get back on track.
Contact your credit card provider. They may offer help such as a short payment holiday. Don’t ignore the situation as missed payments can mean your account goes into default. Defaults stay on your credit record for six years and make it harder to get credit.
If you’re worried about your debts, contact one of the free, independent debt charities such as National Debtline or StepChange.
The only way you can avoid paying interest is if you have an interest-free card or if you pay off your credit card bill in full.
If you’re interested in applying for a credit card, start by comparing credit cards with us.
Tell us what type of card you’d like and we’ll tell you which ones you’re likely to be accepted for. This means you can avoid damaging your credit score by making multiple applications in a short space of time.
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