The true cost of making only minimum payments on your credit card

A credit card minimum payment can keep your account up to date, but it can leave you paying interest for years. See what minimum repayments really cost, what changes when you pay more and when debt consolidation could reduce the total cost.

Making minimum payments on your credit card might feel like the most manageable option right now, but it could cost you thousands of dollars over time. The minimum repayment is designed to keep you meeting your card’s repayment requirements. It isn’t necessarily an efficient way to clear the balance.

That difference can be huge. A repayment that feels manageable this month can shrink as your balance falls, leaving the debt hanging around for years.

So, what does a credit card minimum payment cover, and how much could it cost you in the long run?

Your credit card minimum payment is the smallest amount your provider requires you to pay by the due date shown on your statement.

The exact calculation depends on the card. Minimum repayments are typically calculated as a percentage of the closing balance, often 2% or 2.5%, or a minimum dollar amount such as $20, whichever is higher. As the balance falls, the percentage-based minimum repayment falls too.

If your first minimum repayment is $100, you generally won’t keep paying $100 every month. Unless you choose to maintain that amount yourself, the required repayment can get smaller as the debt comes down.

Australian credit card statements must also tell you how long it would take to clear your balance if you made only the minimum monthly repayments.

Usually, no.

Paying at least the minimum by the due date helps you avoid missing the required repayment, but you can still be charged interest on the balance you carry forward.

If your card comes with interest-free days on purchases, check the terms carefully. Interest-free days generally apply when you pay the full balance by the due date. Paying only the minimum is different from paying the statement balance in full.

The problem becomes clearer when you put real numbers against it.

Take a $5,000 credit card balance with an annual interest rate of 18%. Assume the minimum repayment is 2% of the balance or $20, whichever is higher, with no new spending or card fees.

Your first minimum payment would be around $100. But because the required payment falls as the balance comes down, you don’t continue paying $100 each month.

Using those assumptions, paying only the minimum could take roughly 33 years to clear the original $5,000 balance. Total repayments would be around $17,200, including approximately $12,200 in interest.

These figures are estimates, and your actual result will depend on your card’s repayment formula, rate, fees and spending.

Why does the balance fall so slowly?

Interest is added to the balance you haven’t repaid. Part of every payment covers interest before the amount you owe starts coming down.

Then there’s the falling minimum repayment. As the balance gets smaller, your required payment can shrink too. You keep making the payment shown on your statement, but less money goes towards clearing the debt each month than if you held your repayment at a fixed amount.

If you’re still using the card while repaying it, progress can be even slower.

Using the same $5,000 balance and 18% interest rate, keeping your repayment at $150 a month instead of following the declining minimum changes the picture considerably.

With no further purchases or fees, you could clear the balance in roughly 4 years and pay around $2,000 in interest, rather than carrying the debt for decades.

The exact result will depend on your card, but the principle is simple: increasing your credit card repayments and keeping them consistent means more of the balance disappears sooner.

If you have several credit cards or other debts, debt consolidation is another option you may consider.

Debt consolidation combines eligible debts into a new loan or repayment arrangement. A lower interest rate can reduce what you pay, but the rate alone doesn’t tell you whether consolidation is cheaper. The loan term and fees need to go into the calculation too, and a longer loan can cost more overall even when the interest rate is lower.

For a fuller explanation of how consolidation works and the situations where it may suit you, see our guide to debt consolidation and whether it is right for you.

What could consolidation look like on the same $5,000 debt?

Consider this simplified example.*

*Minimum repayments decrease as the balance falls. All figures are approximate and based on a $5,000 debt. Loan fees are illustrative; credit card fees are excluded.

For the loan examples, we’ve assumed a $300 establishment fee and a $10 monthly account fee simply to show what fees do to the calculation. Actual interest rates, fees and loan terms vary.

The comparison shows why looking only at the monthly repayment can be misleading.

Stretching the hypothetical 10% loan from 3 years to 7 years drops the repayment from about $161 to $83. But while this may look easier on your monthly budget, the longer term adds roughly $1,164 in interest. The example account fees also continue for another 4 years.

Before comparing options, look at the total amount you will repay, not only the amount coming out each month.

You can also use MyBudget’s debt consolidation calculator to estimate repayments across different loan amounts, rates and terms.

How do loan fees change the calculation?

A lower interest rate can lose some of its advantage once fees are added.

Depending on the loan, costs may include an establishment or application fee, ongoing account fees and charges for repaying or closing an existing loan early. If you plan to make extra repayments, check whether the new lender charges a fee or places limits on them.

Do the calculation from start to finish. A loan that saves $40 a month could still cost more over its full term.

Consolidating debt can work when the new arrangement reduces the overall cost and the repayments fit your budget. There are also situations where it can leave you worse off.

Watch for a longer loan term that pushes the total interest and fees higher, even though the monthly repayment falls. A new loan may also make little financial sense if its rate and fees don’t produce a genuine saving.

There are other risks to check. Turning unsecured credit card debt into debt secured against your home or another asset increases what is at stake if you can’t make the repayments. And if your old credit cards stay open and you start using them again, you could end up with the consolidation loan plus new card balances. 

If taking out another loan doesn’t improve your situation, a personalised debt management plan could help you manage your existing repayments alongside bills and everyday expenses. MyBudget’s caring team can help you build a plan around what you can afford, with ongoing support to keep you on track.

If you’re finding it hard to make progress, here are some practical ways to start reducing the balance faster.

1. Pay more than the minimum

If your budget allows, even an extra $50 a month can help you pay off credit cards sooner and save on interest. Use a credit card repayment calculator to see how increasing your monthly payments could make a difference.

2. Prioritise high-interest cards

Use the avalanche method: focus on cards with the highest annual percentage rate first, while maintaining the minimum repayments on others. Once the highest-cost debt is gone, redirect that repayment towards the next card.

3. Consolidate with a balance transfer

A balance transfer credit card with a 0% introductory interest-free period can give you time to repay your original balance without new interest piling on.

But be cautious: once the promotional period ends, interest starts applying to any remaining transferred balance at the applicable rate. Balance transfer fees, annual fees and the rate that applies after the promotional period all need to go into the calculation.

4. Use windfalls wisely

Got a tax refund, bonus, or unexpected cash? Consider putting some of it towards your credit card payments, alongside your other budget priorities. A one-off lump sum can significantly reduce your outstanding balance and help you pay off your credit card sooner.

5. Automate extra payments

Set up a direct debit to automatically pay more than the minimum repayment. You’ll stay consistent without having to think about it each billing cycle, and it’ll help you repay your credit cards faster with less day-to-day admin.

If minimum credit card repayments are taking up money every month without bringing the balance down fast enough, a wider look at your budget can help.

At MyBudget, we create a personalised budget around your income, bills and goals, with caring support to help you stay on track. We’ll help you:

• Work towards paying off credit card debt sooner
• Plan for repayments alongside your everyday expenses
• Pay bills on time with automated services
• See what’s ahead with a 12-month budget plan
• Save for the future with achievable plans.

We’ve helped over 130,000 customers regain control and live free from money worries. Whether you’re working towards clearing credit card balances or building an emergency fund, our caring team are here to make it happen.

Breaking the cycle of minimum credit card payments starts with a plan that fits your life. You don’t have to work it all out on your own.

Enquire online or call us to book a free, no-obligation appointment. Together, we can create a personalised budget to help you pay off credit cards sooner and work towards a life free from money worries.

Call 1300 300 922