Credit card minimum payments, and why they take so long
The short answer
A credit card’s minimum payment is set to shrink as your balance shrinks, so if it’s all you pay, the debt takes years to clear and most of what you pay goes on interest. £3,000 at 24.9% APR takes 15 years on a typical minimum of 1% plus interest, and costs £4,533 in interest. Paying a fixed £150 a month instead clears it in 2 years 2 months, for £793 of interest. Paying a fixed amount, cutting the rate with a 0% deal, and not adding to the balance are the three things that make the biggest difference.
How the minimum payment is worked out
Each card provider sets its own rule, and it’s on your statement and in your card terms. It’s usually a small percentage of the balance, often with that month’s interest added on, or a set amount, commonly £5 or £25, if that’s more. Your statement also carries a warning that paying only the minimum will take you longer and cost you more. Every provider’s rule is listed in credit card minimum payments by provider, and the minimum payment calculator works yours out.
The catch is in how the rule works. As the balance falls, so does the minimum. With a rule of 1% plus interest, each payment takes only 1% off what you owe, so next month’s minimum is 1% smaller again. The balance falls more and more slowly, and the last few hundred pounds can take years.
A rule without the interest added, such as 2.5% of the whole balance, can be slower still. At 24.9% APR the interest is about 1.9% a month, so a 2.5% payment only reduces the balance by around 0.6% a month. £3,000 would take nearly 40 years to clear that way.
Worked example
£3,000 on a card at 24.9% APR, with nothing new spent on it and the rate staying the same:
| Each month | Paid off in | Interest |
|---|---|---|
| The minimum (1% plus interest, or £25) | 15 years | £4,533 |
| £86.10, today’s minimum, kept fixed | 4 years 9 months | £1,900 |
| £100 | 3 years 9 months | £1,444 |
| £150 | 2 years 2 months | £793 |
| £200 | 1 year 6 months | £554 |
The second row is the most useful one. Simply carrying on paying this month’s minimum, rather than letting it fall each month, clears the card ten years sooner and saves over £2,600 of interest, without paying any more than you do today.
Persistent debt: what your provider has to do
The Financial Conduct Authority’s rules on persistent debt are there to stop people paying mostly interest for years. You’re in persistent debt if, over 18 months, you’ve paid more in interest, fees and charges than you’ve repaid of what you borrowed.
- After 18 months, your provider has to contact you, explain that paying more would cost you less, and encourage you to do so if you can afford it.
- After 36 months, if you’re still in persistent debt, it has to offer ways to repay the balance in a reasonable time, usually three to four years, such as a plan of higher payments. If you can’t afford that, it has to consider your circumstances, which can include lowering or stopping interest and charges. It can also suspend the card.
The letters can be worrying, but they’re a normal part of the rules, and the options they offer are worth taking seriously.
Ways to clear a card faster
Pay a fixed amount. Set up a direct debit for a fixed sum each month rather than the minimum. As the table shows, even fixing today’s minimum makes a big difference.
Pay more where it costs most. With more than one card, pay the minimum on each and put anything extra towards the one with the highest rate first.
Move it to 0%. A 0% balance transfer stops interest for a set time, usually for a one-off fee of a few percent of the balance. £3,000 moved with a 3% fee to 12 months at 0%, then 24.9%, and paid off at £150 a month, clears in 1 year 10 months for £220 in all, including the £90 fee. Clear as much as you can before the 0% ends, and don’t miss a payment, which can end the deal early. The balance transfer calculator compares a deal with staying put for your own balance.
Stop adding to it. New spending on the card is charged the same rate and pushes the end date back. Using a debit card for everyday spending while you clear it keeps the two apart.
Keep a small emergency fund. A little cash set aside stops an unexpected bill going straight back on the card.
Getting help
If you’re struggling to keep up, talk to your card provider early: it has to treat you fairly and consider what you can afford. Free, confidential debt advice is available from MoneyHelper, StepChange, National Debtline and Citizens Advice. Avoid companies that charge for debt help, because the free services give the same advice.
Work it out with your own figures
See how long your card takes to clear, the interest you’ll pay, and what paying only the minimum costs.
Open the Credit Card Payoff CalculatorNext step: see what the same monthly payment could grow to once the card is clear.