How can I manage my credit repayments?
The more of your credit card balance you clear each month, the less you’ll pay in interest. Repaying the smallest amount possible against what you owe, called a minimum payment, means it can take a long time to bring down your balance and eventually clear it completely. That’s because minimum payments are usually only a small percentage of what you owe. By paying more than the minimum, you could clear your balance sooner and prevent interest from piling up.
If you have a credit card, your minimum payment is the smallest amount you must pay back each month to avoid late fees and charges. It's based on how much you currently owe on your card, known as your balance, and your annual interest rate.
If the minimum payment amount is all you pay each month, it’ll take much longer to clear your balance and you’ll need to pay extra because of interest. That's why it's a good idea to pay more if you can.
If the amount you owe goes up or down, the minimum payment amount will change as well. Larger balances have higher minimum payments, but if you've nearly cleared the balance, your minimum payment will be much lower.
Although always making at least the minimum payments will help you avoid late fees and charges, it doesn’t mean you won’t pay interest. How much interest you pay depends on which card you have and how long you take to pay it off. To avoid spending money on credit card interest that you could instead put towards something you really want, you can:
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If you can afford it, it’s always a good idea to pay more than the minimum payments each month, in order to clear your balance faster and reduce your overall interest payments.
Here are a couple of great reasons to make more than the minimum payment whenever possible.
Carrying a balance on a credit card isn’t unusual – sometimes your monthly budget won’t stretch to clear it in full. But there’s a great feeling to be had by gradually clearing more of your balance. You can choose what to do with your money, including topping up savings, instead of paying the interest that’s added to your purchases.
See how increasing your monthly payments could mean you pay less in interest by using our Repayment Calculator.
A credit card can be a flexible borrowing tool if you’re able to make more than the minimum payments each month.
When you only pay your minimum payments, your outstanding balance sticks around for longer. This could mean needing to use more of your credit limit than you otherwise would.
By paying as much as possible above the minimum payments, you pay off the balance and interest sooner, and reduce the amount of interest you’ll have to pay.
When your balance is smaller, you have more of your credit limit available to use when you need extra flexibility in your budget , whether it’s a big supermarket shop just before payday or a larger one-off purchase. It’s important not to get carried away, though, and only ever borrow what you can afford to pay back.
Because minimum payments are usually calculated as a percentage of what you’ve borrowed but not yet repaid, they get smaller as you get closer to paying off what you owe. This means it can take a long time to clear your balance.
For example, on a card with 19.9% annual interest rate, the minimum payment in the first month on a balance of £3,000 would be around £75 (assuming you don’t make any other purchases).
However, in the last few months it would only be a few pounds. Just because the minimum payments are small doesn’t mean you should consider clearing your balance less urgent though.
For example, in this case clearing the total balance and interest would take 27 years and 8 months, and cost you £4,376 in interest. However, paying a fixed amount of £75 per month (the same as your first minimum payment) would clear the balance in 5 years and 3 months, and cost just £1,662 in interest.
Any extra money that you can put towards your credit card repayments means you’ll clear the balance faster and pay less interest. The Repayment Calculator can help show how much less interest you’ll pay by increasing your payments a bit more each month.