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Tackling your debts

Are you losing out by only paying the minimum?

Posted 06 February 2015

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<p>Paying the minimum on your credit card can seem like the easier option, but are you losing out by doing this? </p>


Unlike other types of borrowing, credit cards give you more control over how much you repay every month. But this isn’t necessarily a good thing. Getting into the habit of paying back only the minimum amount can make you think that you’re on track with your payments, when in reality you could actually be extending the time that you’ll be in debt, as it’ll take you much longer to clear the balance.

Paying just that little bit more

As what you repay on your credit card every month is usually a percentage of the balance, rather than a fixed amount, the minimum monthly repayment will go down as your balance reduces. This means that by only making the minimum payment every month, your balance is not going to go down very quickly, and neither will your repayments.


Although it is important to keep up with the minimum payments … as credit card companies usually charge a fee for not doing so … paying even just a little bit more than the minimum each month can make a big difference to the amount of money that you repay overall and the time it takes to clear your balance.


As an example, if you had a £3,000 balance on a typical credit card with an 18.9% APR, and a £5 minimum monthly payment, it would take just over 27 years to clear the debt, and you’ll pay over £4,170 in interest. But, if you were to make a fixed payment every month of £60, it would only take you 7 years and you would pay £2,392 in interest.


We’ve used Money Saving Expert’s handy Minimum Repayments Calculator, which you can find here, to show the different variations of how long it would take you to pay off this balance without borrowing further:


Amount Repaid Time taken to repay in full Cost of interest
Minimum (1% + interest or £5) 27 years and 4 months £4,170
£60/month 7 years and 6 months £2,392
£80/month 4 years and 7 months £1,365

This example shows that making a fixed payment that’s more than the minimum, based on what you can afford to pay every month, can dramatically reduce the amount that you end up repaying overall. Setting up a standing order can help you to maintain this monthly payment.

Struggling to pay the minimum

Contacting your lender as soon as you can will make them aware of your situation. In response to this, they could offer you an alternative payment plan to help you begin making repayments.


You could also seek out the advice of one of our professional debt experts, who will be able to walk you through the different debt solutions that are available (fees are chargeable on some solutions).

by Sarah Symons

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.