Credit Card Minimum Payments

Credit Card

Typically speaking, a credit card is a convenient substitute for cash allowing consumers to purchase goods or services.

Given Australia’s current credit card debt is a touch under $32 billion, it’s probably fair to say that the majority of card holders are either facing financial difficulty in repaying the debt or simply do not understand how credit cards work.

‘Putting it on the card’ seems the ideal short term solution to pay for a holiday, new car, shopping splurge or any other want that needs fulfilling. With a range of lender’s offering specials such as 0% interest on purchases or balance transfers, it appears a logical short term solution.

If you have ever found yourself attracted to such offers before, ensure you understand what interest rate your credit card will revert to after the intro period has expired.

Unlike most home loans which are charged daily interest on the applicable interest rate, credit card interest comes in various types such as;

  • Purchase Interest
  • Cash Advance Interest
  • Balance Transfer Interest
  • Interest on Fees
  • Special offer Interest Rates

Your particular credit card may charge varying rates of interest for the relevant transactions which can make it difficult to keep track of the interest being accrued.

Each month, you receive a statement from your lender which discloses the amount of interest accrued during that particular period and the minimum monthly repayment amount. Many people assume that by making this minimum monthly repayment, they will avoid being charged interest the following month. Wrong.

The minimum monthly repayment is generally determined as an amount between 2% – 2.5% of the outstanding balance or a fixed $ figure whichever is higher. Whilst this payment is enough to cover the interest charges, it doesn’t stop interest being accrued on the outstanding amount and more importantly, won’t help you pay off your card quicker.

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.

Credit Card

It’s an all too common situation people find themselves in believing they are doing the right thing by paying whats required. In order to avoid interest charges for the following month, the closing balance listed on the statement must be paid in full by the payment date. In order to pay down your credit card debt quicker (and avoid excessive interest), you need to be paying more than just the minimum each month.

Use the following link if you wish to calculate how much you could save by committing a higher repayment

Additional information used for this article via





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