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The truth about the credit card minimum repayment

While you can choose to simply make the minimum repayment on your personal credit card each month, doing so can come at a cost. If you only pay the minimum, you’ll end up paying more interest and it may take longer to pay off or reduce your credit card balance.

When you get your credit card statement, you’ll see a ‘minimum repayment’ figure. If you do not pay the minimum repayment figure by the statement due date, you may be charged a late payment fee and your ANZ credit card may be suspended or closed.

It could be tempting to simply pay this amount. But if you keep doing this, it could end up costing you much more in interest in the long rundisclaimer.

Let’s take a look at why only making minimum repayments could end up costing you more. 

Heed the warning on your statement

Your statement should include a ‘minimum repayment warning’, which shows you two different scenariosdisclaimer. Depending on how big your closing balance is, these two scenarios can be chalk and cheese.

The first scenario gives an estimate of how long it could take you to pay off your credit card closing balance if you only make the minimum repayment each month and make no more purchases. It also provides an estimate of how much interest you could end up paying over that timeframe (assuming you make no new transactions, and fees and interest don’t change).

The second scenario gives an estimate of how much you’d need to pay each statement period to pay off the closing balance in two years (assuming you make no new transactions, and fees and interest don’t change). This scenario includes an estimate of how much you could save in total interest charges.

Here’s an example from a sample statement for an ANZ Rewards Platinum credit card with a closing balance of $4,219.03, which assumes an interest rate on purchases of 18.79%, late payment fees of $20 and an overdue amount of $552 payable immediately for the statement period.

 

The warning below is an Australian Government Requirement and the information is provided as a guide only. Minimum Repayment Warning: If you make only the minimum payment each month, you will pay more interest and it will take you longer to pay off your balance. For example:

sample statement
If you make no additional charges using this card and each month you pay… You will pay off the Closing Balance shown on this statement in about… And you will end up paying an estimated total of interest charges of…
Only the minimum payment ($85) 30 years and 4 months $11,437.88
$212.25 2 years $874.97, a saving of $10,562.91

 

In this example, if the account holder paid $127.25 more than the minimum repayment each month, they could save over $10,000 in interestdisclaimer. Flip side, if the account holder only made the minimum payment (in this example, $85) each month, then paying off their balance could take longer and they could end up paying more in interestdisclaimer.

If you want to clear or reduce your credit card debt faster, aim for more than the minimum

Take a look at that warning on your credit card statement each month and use it as a motivation to try and pay off more than the minimum repayment each month. For further motivation, you could use a tool like the MoneySmart credit card calculator to get an estimate of how much of a difference extra repayments makedisclaimer.

Assess your financial situation to see how much you can put towards your credit card payment each month. For example, if you want to clear your credit card debt faster, you could consider reviewing your budget and making cutbacks on discretionary spending, and then commit to using these savings to make higher repayments on your credit card.

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Information in this article refers to personal credit cards, is general in nature only and does not take into account your personal objectives, financial situation or needs.

By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations. You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.

The information is current as at June 2019 and may be subject to change. ANZ recommends you review your personal credit card contract for information about the terms that apply to you.

ANZ interest rates and fees and terms and conditions are subject to change. Refer to the current credit card interest rates, fees and terms for further information and current interest rates, fees and terms.

Applications for credit at ANZ are subject to ANZ's credit approval criteria, terms, conditions and fees and charges apply. Australian Credit License Number 234527

Compared to if the account holder had paid their closing balance in full each month.

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The information provided in the Minimum Repayment Warning is provided as a guide only. It provides an estimate of how long it will take an account holder to pay off a credit card closing balance for a particular month if the account holder only pays the Minimum Monthly Payment each month. It shows how much interest the account holder could end up paying assuming the account holder makes no new transactions and fees and interest rates do not change.

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The information in this statement is given for illustrative purposes only and may not reflect how charges are calculated under your credit card contract.

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Example only. Assumes an interest rate on purchases of 18.79%, late payment fees of $20 and an overdue amount of $552 payable immediately for the statement period. The example also assumes the customer makes no new transactions and fees and interest rates on the card do not change.

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The Money Smart credit card calculator is a tool provided on the website as at 8 May 2019. As at 8 May 2019 that website indicates that the tool is a model, not a prediction and that results from the tool are only estimates. ANZ recommends that you read the disclaimer and assumption information provided on that website (or for any other estimation tool) before using that tool. ANZ has not verified the accuracy of the tool and makes no representations as to its accuracy.

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