What is a minimum payment on a credit card?

At a glance

• The minimum payment on a credit card is the smallest amount that your card provider will accept as payment of your debt for that month.
• Typically, the minimum payment will be a percentage of your debt or a set amount, whichever is higher.
• It will take much longer to repay your debt if you only pay the minimum.

Arguably the most important part of having a credit card is repaying it. You’re expected to make a payment every month, and if you can’t afford to pay off the full balance, your provider will set a minimum amount. Here we take a closer look at what a minimum payment is, and how to make sure you never miss it.

What is a minimum payment?

In a nutshell, a minimum payment is the minimum you have to repay on your credit card each month, typically a percentage of your overall balance plus interest, or a set amount (whichever is higher). This minimum amount can vary depending on the balance on your card and also your provider’s criteria.

This minimum payment goes towards paying the interest accrued during the month and also some of your balance, as well as any fees that may be applicable (such as missed payment charges or annual fees). The next month the same thing happens again, and as this goes on your debt gradually decreases.

Note that if you don’t make the minimum repayment you’ll be charged late fees, and it could have an impact on your credit score. A great way to avoid this is to set up a Direct Debit to cover the minimum so you never miss a payment.

How to calculate a minimum payment on a credit card

The minimum payment on your credit card is normally set at a percentage of your balance (plus interest) or a fixed cash amount, whichever is higher. For example:

• If you’re being charged 3% on a £3,000 balance, your minimum payment for the month will be £90, plus interest.
• You might be charged a flat fee instead, for example £5 or £10. This may be used if you have a lower balance, for example.
  Your provider sets the amount and calculates the minimum payment each month; you can’t decide which option to pay, but you can find the criteria on your credit card statement.

What if you only make the minimum payment?

There’s nothing wrong with only making the minimum payment each month if that’s all you can afford, but just bear in mind that it can take a lot longer to clear the balance.

This is because it’s normally worked out on a percentage basis, so as your balance reduces, so does the minimum payment. This means that instead of accelerating the repayment of your borrowing – as you would do in the later stages of a mortgage or loan – you are only ever repaying a very tiny amount of what you borrowed. As a result it will take a lot longer to clear, and you’ll pay far more in interest than if you paid more than the minimum.

If you only make the minimum payment on your credit card for 18 months you’ll be classed as being in persistent debt under FCA rules. This means you’ll have paid more in interest and fees than you would have towards the balance. At this point your card provider should contact you and ask if you can increase your repayments, and if you’re still in persistent debt after 36 months, they can offer additional support (such as reducing or waiving fees). But it’s important to seek help before you get to this stage – find out how to get out of debt if you’re struggling.

Why you should pay more than the minimum

Even relatively small balances on a credit card can take an extraordinarily long time to repay if you only paid the minimum amount each month. This is why it’s always advisable to pay more than the minimum, as not only will you be able to repay the balance quicker, but it will also be far cheaper as you’ll incur much less interest.

Example:

You have debt of £3,000 on a credit card, which charges 16% APR and a minimum payment of 3% (plus interest). Assuming the interest rate never changes, and you only paid the minimum amount, this debt could take over 17 years to repay. In that time you’d have paid out £5,058.45, including interest of £2,058.45.

If you instead paid a fixed monthly amount of £100, it would take little more than three years to repay and you’ll have paid just £778.85 in interest.

You can get a more personalised idea of how long it could take to pay off your credit card and how much it could cost using our minimum repayment calculator.

In an ideal world you’d repay the balance in full each month, as this means you won’t ever be charged interest. But this won’t be practical for everyone, particularly if you’re using your card as a way to pay for a large purchase. The best thing you can do would be to pay off as much as you can each month, or you could consider switching to a 0% balance transfer card so you needn’t worry about interest accumulating.

Minimum payments on 0% interest credit cards

If you have a 0% credit card – either a purchase or balance transfer version – you still need to make the minimum payment, otherwise you risk late fees and damage to your credit score, and you could even lose your 0% offer.

The benefit of this kind of deal is that interest won’t be added to your balance each month, so it should theoretically be quicker and easier to repay the full amount. Yet if you only stuck to the minimum payment, you wouldn’t clear the balance in full before the 0% period comes to an end.

This is why you should try to pay off more than the minimum – much as with all other kinds of credit card – as this way you could clear your debt by the end of the initial term.

If you’re coming to the end of a 0% deal – or if you still have debt on an interest-bearing credit card – it’s worth switching to a 0% balance transfer card. There will usually be a fee, typically around 3%, but you should quickly repay this as you won't be paying interest.

A 0% balance transfer credit card can be especially good if you have trouble paying anything more than the minimum payment each month, as every penny you pay goes straight to repaying your debt. Just be ready to move on to a new 0% balance transfer card at the end of the introductory term.