What is the minimum payment on your credit card?

Why is making the minimum payment important?

Making the minimum payment on time keeps your account in good standing, protects your credit score, and avoids late fees or extra charges.

Missing a payment, however, could mean:

• Being charged late payment fees.
• Paying extra interest on your balance.
• Damaging your credit score, which could make borrowing harder in the future.

How to work out the minimum payment

The minimum payment depends on your lender, but it’s usually a percentage of your balance or a fixed amount, whichever is higher.

Here’s an example:

• If your balance is £1,000 and your minimum payment is 5%, you’ll need to pay at least £50.

Your lender might calculate the minimum payment in one of these ways:

1. A fixed cash amount e.g. £10.
2. A percentage of your balance e.g. 3.5%.
3. A percentage of your balance plus interest.

For example, your statement might say:

"The greater of 2% of the balance plus interest, 3.5% of the balance, or £10."

Here’s how this works:

• 2% of the balance plus interest means you pay 2% of your total balance plus any interest owed.
• 3.5% of the balance means you just pay this percentage of your balance, but no interest.
• £10 means you pay this amount if it’s larger than the other two options.

You can find your exact minimum payment on your monthly statement.

Should you only make the minimum payment?

No, you should always try to pay more than the minimum if you can. Here’s why:

• Interest adds up quickly: Anything you don’t pay off will keep building interest, making your debt grow.
• It takes longer to get out of debt: If you only pay the minimum, it could take years to clear your balance.

For example: Let’s say you owe £1,000 on a credit card with a 20% interest rate and only pay the 2% minimum each month. It could take over 20 years to clear the debt and cost you hundreds of pounds in interest.

Is only making the minimum payment okay?

Yes, it’s okay to make the minimum payment if money is tight, but this should only be a short-term solution.

If you’re juggling other expenses, like a broken boiler or a higher-interest loan, making the minimum payment can help you stay on track until you’re in a better position to up your payments.

But as soon as you can, start paying more than the minimum to reduce your debt and save on interest.

What happens if you keep making the minimum payment?

If you only pay the minimum each month:

• Your debt will take much longer to clear.
• You could pay far more in interest than you originally borrowed.
• You might feel stuck in a cycle of debt, especially if you keep spending on the card.

How can you manage credit card payments better?

To avoid getting stuck in debt:

• Pay as much as you can each month – clearing the balance is ideal if you can afford it.
• Set up a Direct Debit so you never miss a payment.
• Stick to a budget and only spend what you can repay.

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