Credit card minimum repayments

Paying back the minimum on your credit card

What’s the minimum repayment on a credit card?

The minimum repayment on a credit card is the minimal amount that the credit card company stipulate that you must pay back on the money you have borrowed.

The minimum payment is normally a percentage of your balance or a cash amount – for example, 3% or £10. You’ll also need to consider any interest due, any additional charges – for example, late payment feeds – and any annual fees.

There’s a difference between paying off your credit card and actively trying to shift the debt, and just making the minimum payment every month.

When you actively tackle your debt, and pay off more than the minimum amount, the amount you owe – including interest - becomes lower over time. Your minimum repayments become lower too. The more you pay, the faster the debt disappears.

However, if you’re only ever paying off the minimum, it can take a long time to clear the debt.

What happens when you make the minimum repayment?

Paying back the minimum amount is a temporary relief – yes, you’re satisfying the terms your credit card company has set, but interest charges can add up if you’re not making an effort to clear the balance.

This trade-off means it can become more difficult to make the minimum repayments over time, especially if your card charges a high interest rate.

Here’s what you can expect if you’re only paying back the minimum amount on what you owe:

How can minimum repayments affect your credit score?

When your credit card balance increases, so does the percentage of your credit you’re using.

Credit cards affect your credit rating, so high balances can adversely affect your credit score if you don’t stay on top of repayments.

If your credit score takes a knock, it can make it trickier to apply for affordable loans and credit cards with the best repayments plans, as lenders may take it as an indication that you’re not a reliable borrower.

Interest and minimum credit card repayments

If you’re paying back the minimum of what you owe, you won’t have to pay any additional charges or late fees. However, you’ll still have to pay the interest on the outstanding balance.

If you carry on making minimum payments, you’re effectively treading water, as the compounding interest can add up and increase your debt. The longer you leave it to clear the balance on your credit card, the more interest you’ll pay, as you’ll still have to pay charges until it’s paid off in full.

The best thing to do, if you can afford to, is to pay off the balance in full every month. This means you won’t be paying off any interest – except if you use your credit card to withdraw cash, which may incur additional fees.

How to increase your minimum repayments

If you can make a few small changes to increase your minimum repayments, you’ll reap the benefits of cutting your interest and clearing your debt faster. Basically, the quicker you repay what you owe, the less it will cost you.

  • Set a budget and work out how you can cut back on unnecessary spending
  • Set up a direct debit so you never forget to pay off your credit card
  • Prioritise your debts according to interest fees and the amount which you owe

If you miss a payment, don’t panic – there’s plenty you can do to ensure you minimise the impact of a late payment:

  • Contact the credit card company as soon as possible and explain that you’re aware what’s happened
  • Fully explain your situation, as they may be able to agree a temporary repayment solution with you
  • If you are struggling with debt, you can turn to charities such as StepChange for free debt advice
  • If a late credit card payment negatively affects your on your credit report, you can try and reduce its impact by taking steps to improve your score

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