Understanding credit card minimum payments
If you owe money on your credit card, you must make at least a minimum payment each month. This will avoid late payment fees and other penalties.
The way minimum credit card payments are calculated varies between credit card issuers.
As an example, with one high street bank your minimum payment would be “either 2.5% of your balance plus any interest and fees or £5 – whichever is higher”. Your credit card provider will do this calculation for you and tell you how much you need to pay. It will put this on your monthly credit card statement.
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What are credit card payment options?
Unlike a loan, where you usually have fixed payments every month, borrowing on a credit card gives more payment options.
You have more freedom to decide how much to pay off from month to month.
The monthly payment options are:
- Make the minimum payment
- Pay more than the minimum payment
- Clear the full balance
What is a minimum credit card payment?
The minimum payment on your credit card is the lowest amount you must pay towards your debt each month.
The minimum payment on your credit card is calculated from your latest credit card statement balance. You don’t need to work out the minimum payment yourself as your card provider will tell you how much you need to pay. This figure will be on your monthly statement alongside a due date.
The basics of minimum payments
The minimum payment is based on how much you currently owe on your card – your balance – and your annual percentage rate (APR).
If the amount you owe goes up or down, the minimum payment amount will change too. The more you spend on your credit card, the bigger the minimum payment will be.
Paying the minimum repayment on your credit card each month might seem cheap, but it will cost you more in the long term. Only making minimum payments will take you a long time to cut your balance and clear your debt.
By paying more than the minimum each month you will repay credit card debt faster. It will also reduce the total interest you pay.
What happens if I fail to pay the minimum on my credit card?
If you fail to pay the minimum on your credit card, the following can happen:
- You will be charged a late payment fee
- Your lender will demand the payment is made
- Any 0% interest deal on your credit card could be cancelled
- Your credit score could go down
- Further action could be taken against you, such as debt collection
How minimum payments are calculated
Minimum repayments apply to all credit cards including Mastercard and Visa. They are calculated by your credit card provider each month.
Most credit card companies will calculate the payment as a percentage of what you owe, with a minimum flat rate charge.
This table shows how much the minimum payment will be for a typical minimum payment of “2.5% of your balance plus any interest and fees, or £5 – whichever is higher”.
Credit card balance |
Minimum payment |
|---|---|
£50 |
£5 |
£100 |
£5 |
£250 |
£6.25 |
£500 |
£12.50 |
£1,000 |
£25 |
Impact of making minimum credit card payments
On your credit score
Paying minimum payment on a credit card probably won’t affect your credit score in the short term.
However, if you continue to use your credit card and borrow more money, your credit card balance will increase. The percentage of your available credit you’re using (your ‘credit utilisation ratio’) will increase and this can have a negative effect on your credit score. It’s best to borrow less than 25% of your credit limit.
On your debt over time
Repaying credit card debt by only paying the minimum payment each month means your debt is likely to increase over time.
This is because interest on credit cards is compounded (you pay interest on interest). This will add up and increase how much you owe.
Example minimum credit card payment scenarios
The following table shows examples of different minimum credit card payment scenarios based on an interest rate of 24% APR, a balance of £3,000 and no further spending.
How much you pay |
Time to clear £3,000 balance |
Interest paid |
Total paid | |
|---|---|---|---|---|
Minimum payment |
Start at £84 a month, reducing over time |
28 years 3 months |
£5,214 |
£8,214 |
Fixed payment |
£84 a month |
4 years 10 months |
£1,866 |
£4,866 |
Higher payment |
£124 a month |
2 years 9 months |
£981 |
£3,981 |
Source: Halifax
As the table shows, just paying the minimum each month means it would take more than 28 years to clear a £3,000 balance and you’d pay more than £5,200 in interest.
Making a fixed payment of £84 each month would mean you’d clear the debt in four years and 10 months and pay £1,866 in interest. Increasing the payment to £124 a month would result in repaying the entire balance in two years and nine months, paying £981 in interest.
Benefits and considerations of minimum credit card payments
Short-term relief vs. long-term debt
If you are short of money, just paying the minimum on your credit card balance can offer short-term relief to your financial problems. It will keep the credit card company happy and you won’t be hit with a late penalty fee or see your credit score affected.
However, in the longer term you will pay a lot more interest to eventually pay off the debt and it will take much longer than if you paid more than the minimum each month.
Interest and fees
Paying only the minimum on your credit card each month will increase how much you’ll pay in interest in total.
On the plus side, it will mean you avoid penalty fees – late payment charges will apply if you fail to make at least the minimum payment.
How to avoid falling into the minimum payment trap
If you regularly spend on your credit card, try to avoid falling into the ‘minimum payment trap’ where you only pay the minimum due each month.
While you're making minimum payments, the interest on the unpaid balance on your credit card continues to grow, making it more difficult to pay off your debt. This trap could cost you hundreds or thousands of pounds and keep you in debt much longer.
However, there are several ways you can avoid falling into the minimum payment trap.
Paying more than the minimum
If you can afford it, it’s always a good idea to pay more than the minimum payment on your credit card debt each month.
You can set up a direct debit to make a fixed payment to your credit card each month. Make sure this is affordable.
By paying more than the minimum payment, you’ll pay off the balance and interest sooner, and reduce the amount of interest you’ll have to pay.
Budgeting and financial planning
Budgeting and financial planning can help you work out how much above the minimum you can afford each month.
List your income and outgoings and look to see where you might be able to cut costs. For example, if you find a cheaper mobile phone tariff you could put the money you save each month towards paying off your credit card.
Using credit cards wisely
Only using your credit card if you have to (for example, only for essentials, not unnecessary spending). This can help stop you from falling into the minimum payment trap.
Make sure you stay within your credit limit. Exceeding your limit may result in additional fees, and also impact your credit score. You should aim to use less than 25% of your credit limit.
FAQs: Minimum credit card payments
What happens to my credit score if I only pay the minimum?
Only paying the minimum probably won’t affect your credit score in the short term. But if you only pay the minimum for a long time, it will affect your credit utilisation ratio which, in turn, will impact your credit score.
Your credit utilisation ratio is how much of your available credit you are currently using. For example, if your credit card limit is £2,000 and you owe £500, your credit utilisation ratio is 25%. But if you owe £1,200 your credit utilisation ratio will be 60%.
Exactly how credit scores are calculated isn’t made public, but lenders generally advise keeping your credit utilisation below 25%.
You can check your credit score with a credit reference agency. In the UK, the credit reference agencies are Experian, Equifax and TransUnion.
Will my credit score drop if I only pay the minimum?
Your credit score may drop if your lender deems you to be in ‘persistent debt’ – this situation might arise if you only pay the minimum on your credit card each month.
The Financial Conduct Authority (FCA) defines persistent debt as when you are paying more in interest, fees and charges than you are paying off your credit card or store card balance, for a period of 18 months or longer.
Your credit card company might write to you if you are in persistent debt, encouraging you to repay your debt quicker. If you fail to do so, it may suspend your credit card account. This will have a negative impact on your credit score.
Summary: Credit card minimum payments
When you repay a credit card debt, you can choose the amount you repay each month. You might pay part of the debt each month or your entire balance. However, you can’t just pay nothing. You must make a minimum payment.
This contrasts with loans and mortgages, where your monthly repayments are fixed and calculated by the lender.
Just paying the minimum repayment on your credit card each month might help make debt payments affordable, but it will cost you in the long run. You will pay more interest on your credit card.
Pay off more than the minimum if you can. Where possible, switch to a credit card with a low or 0% interest rate offer on transferred balances. This way you can pay off the debt quicker as a smaller proportion of your payments will be going on interest.