Easy. Just make the minimum repayments on your credit card.

Josh, a Queenslander, had been paying off his credit card debt for years. It began as a balance of $3,972, after he got back from a holiday. His credit card statement told him he could repay his debt at just 2% per month, so that's what he did, starting at just $79.44. Trouble is, the interest rate on his card was 19.84% p.a., so most of that repayment disappeared in interest charges of $65.67. Fast forward four years, and his debt was still $2,975, even though he hadn't added a single cent to his debt with new purchases.

He needed to know how long it would take him to repay his debt if he went on making minimum repayments. Or could he increase his repayments and clear the balance more quickly?

Using our minimum repayment calculator, he found it would take him another 59 months to be debt-free if he carried on making only minimum repayments. But if he could add an extra $150 per month to his repayments he would clear the remaining $2,975 balance in just 17 months.

And if he transferred his balance to a low-interest card with a zero-interest introductory offer, he could clear his debt even faster!

This case study is intended as a representative example.

What is a credit card monthly minimum repayment?

When you have an amount owing on your credit card and you can't afford to repay the balance in full, you are still obliged to make a small repayment every month. This amount is calculated according to your card's current terms and conditions and will usually be expressed as either a percentage of the closing balance (e.g. 2%) or a fixed amount (e.g. $20). Most cards stipulate that the minimum repayment will be the greater of the percentage or the fixed amount. E.g. 2% of a $900 debt would be only $18, so the minimum repayment would be $20.

What percentage is used to calculate the minimum monthly repayment?

The percentage varies from card to card, but is usually between 2% and 3%.

How do I know how much to pay for the minimum monthly repayment?

The minimum monthly repayment and due date will be shown in a prominent place on your credit card statement.

If I don't add to my debt with new purchases, will the minimum repayment be the same amount each month?

Unless your debt is quite small, the minimum monthly repayment is usually calculated as a percentage of your debt (e.g. 2%). This means that your debt will reduce slightly with each minimum repayment (‘slightly' because a lot of the repayment is chewed up by interest charges). So 2% (or 2.5%) of the debt will also be a smaller amount each month. You can pay off your debt faster by sticking to the amount of the minimum repayment calculated in the first month.

For example, if you had a debt of $5,000 on a card with a 17.99% interest rate and a minimum monthly repayment calculated as the greater of 2% or $20, your first monthly minimum repayment would be 2% of $5,075 (the amount after interest charges), i.e. $101.50. In the second month the minimum repayment would reduce to $100.96. The minimum repayment would decline each month, and once the calculated amount fell below $20 it would be replaced by a $20 minimum repayment.

If I make the minimum monthly repayment, will I still be charged interest?

Yes. Making the minimum repayment prevents you from being in default with your debt, but it does not absolve you from interest charges on the remaining balance.

What happens if I don't make the minimum repayment on time?

If you pay on time an amount that is less than the minimum repayment required, your card issuer may still consider this a late payment. In this case you would possibly be charged a late payment fee. Some cards do not charge a late payment fee, while others charge between $5 and $35. Depending on the amount of your repayment, the card's interest rate and the late payment fee, the amount owing could actually increase, even though you have made a small repayment.

If you make the full amount of the minimum repayment, but are late making the payment, you will probably be charged a late payment fee. Once again, this could result in an increase in the amount owing instead of a decrease.

If you do not make any repayment at all you risk being considered to be in default of your contract with the card issuer. This is especially likely if you fail to make any repayments for a number of months. You may cause serious damage to your credit record, and, at worst, legal action could be taken against you to recover the debt.

What should I do if I can't afford to make the minimum repayment?

Contact your card issuer as soon as possible, to discuss the possibility of special repayment arrangements, such as delaying payments for a set time, or reducing payments, or both.

If you and the card issuer cannot come to an agreement about rearranging the payment schedule, or if you feel that you are being unreasonably harassed or threatened, you can complain to an external dispute resolution provider, whose contact details will be listed in the terms and conditions of your credit card.

How long will it take me to repay my balance if I make just the minimum monthly repayments?

It depends on the amount of your debt, your card's interest rate, and how your card issuer calculates the monthly minimum repayment amount. The best way to work it out is to use our Minimum Repayment Calculator. Enter the actual values in the balance, interest rate and minimum monthly repayment fields, to get an answer expressed as the number of months it will take to clear your debt.

How long will it take me to repay my balance if I make additional repayment amounts?

It depends on the amount of your debt, your card's interest rate, the monthly minimum repayment amount, and the amount or percentage of extra payment you intend to make each month. If you enter these values in our Minimum Repayment Calculator, you will get an answer expressed as the number of months it will take to clear your debt.

Why is it a bad idea to make just the minimum monthly repayments?

Making just the minimum repayment will greatly increase the time it will take you to repay your loan, possibly stretching it out to tens of years. During that time you will pay much more in interest than you would by paying your loan off earlier. Even a small increase, over and above the minimum repayment, can make a huge difference.