Calculate your credit card monthly repayments and know how much you need to pay to get your debt under control.
Each statement period, credit card holders are required to make a minimum repayment of around 2-3% of the balance amount by a specific due date. Unfortunately, this minimum repayment is never enough to pay off your balance without accruing interest. Instead, only paying the minimum repayment could mean it takes years to pay off a debt – even one as small as $500.
This makes it important to calculate a monthly repayment amount that helps you clear the balance and also manage your budget. Knowing how much you need to pay off each month is especially important if there is a promotional low interest offer in place.
Use this guide to understand how repayments work, calculate your monthly repayments and learn how to pay off your debts to reach your financial goals.
How to calculate minimum monthly repayments on purchases
Every credit card repayment is made up of two parts:
- Transaction costs
- Interest charges
While you are paying less interest on a balance transfer card, you may still have to account for the interest charges calculation, so follow these simple calculations to give you an idea of how much your monthly payment will be.
How much is the minimum monthly repayment?
Most credit card issuers charge a minimum repayment of around 2-3% of the full outstanding balance each month. You will need to pay this amount to avoid late payment fees and charges.
How to calculate the balance portion of your repayment
- Most credit card issuers charge a minimum repayment of around 3% of the balance each month.
- On a $5,000 balance with a minimum repayment of 3% for example, you’d need to pay at least $150 each month.
- You can calculate how much 3% of your balance is with the following formula : (3/100) x (your balance) = your balance repayment amount.
While $150 might be the minimum repayment, you should try to pay the full balance (or as much as you can) each month. Say you had a debt of $5,000 and only paid the $150 minimum requirement; it would take you over 33 months to repay the balance. This could take even longer if the balance collects interest and your debt continues to grow as you’re paying it off.
If a balance transfer offer is in place, it’s best to pay off your entire balance before the promotion ends and the revert rate applies.
How to calculate the interest portion of your repayment
Unless there’s an offer for 0% balance transfer or purchases in place, interest is also added on top of the amount you charge to your card each month. Find out how you can estimate the amount of interest you’ll accrue below:
- To estimate the amount of interest included in your monthly repayment, use this calculation:(9.9/100) x (your balance e.g. $5,000) ÷ (months e.g. 12) = your initial interest repayment amount will be $41.25.
- On a $5,000 balance for example, with a 9.9% balance transfer interest rate, the interest portion of your repayment will be around 27.5% of a minimum payment of $150.
As you continue to pay down your debt, your interest charges will also reduce each month as your balance decreases. Similarly, if you only pay the minimum repayment and your debt continues to grow with interest, your interest payments could increase with time.
If you pay your balance in full, most credit cards will offer interest-free days for a set period for your future purchases.
If your credit card has a balance transfer promotion or purchase offer with 0% interest, you can repay your debt on time by dividing the total outstanding debt by the number of months in the promotion. So, if you have a transferred debt of $5,000 and a balance transfer promotion of 0% for 12 months, you’d be required to make monthly repayments of $416.66 to clear the debt before the promotion ends.
When the offer does end, a higher revert rate will apply and your balance will start collecting interest again. So if you’re serious about paying down your debt, it’s important to clear your balance before the offer ends.
Other factors to consider when paying down credit card debt
- Promotional interest rate and revert rate. Most balance transfer credit cards currently have a 0% interest rate for the set promotional period. However, once this offer ends, the standard variable purchase rate or cash advance rate (which can be as high as 22%) will apply. Some credit cards have low promotional purchase rates between 0% and 10%, so this is important to note when comparing your options and planning your repayments.
- Length of promotional period. Depending on the card, some promotional offers will last between 3 and 24 months. Consider the size of your debt or the number of purchases you plan to make and ensure that the promotional period gives you enough time to clear your balance before the offer ends.
- Consolidation of multiple cards. If you’re struggling to repay multiple debts, you could consider consolidating all of them onto one credit card with a 0% balance transfer offer. Your debt may appear larger, but it’ll be easier to pay it off under one account that isn’t accruing any interest. It also means you’ll only have to deal with one monthly repayment for your debt.
- Eligibility requirements. Cards with low or no interest balance transfer and purchase offers often come with strict eligibility requirements. For example, you’ll need to have a good credit history, meet a minimum annual income and might not be able to transfer between particular banks. Make sure you’ve met these eligibility requirements before applying to improve your chances of approval.
- Other costs. While you’ll be saving on interest and paying down your debt, make sure you understand the other costs that come with the card. For example, balance transfer fees, interest on purchases and annual fees could all counteract the savings you’re making from the offer.
A credit card is a convenient way to access credit and manage your expenses, but it’s extremely important to understand how your repayments work and how much you will have to pay each month. While you’ll only have to pay the minimum repayment each month, paying as much as you can each statement period will help you repay your debt faster and reduce your total costs in the long run.
If your balance transfer promotion provides 0% interest, an ideal way to repay your debt in time is to divide the total outstanding debt by the number of months provided for the promotion. For example a debt of $5,000 and a balance transfer promotion of 0% for 12 months will require a monthly payment of $416.66 in order to entirely clear the debt before the end of the promotion.
In the example above, your minimum monthly repayment would be $175 a month on a balance transfer offer with a 5.9% interest rate. If you make only the minimum payments on your card, you will pay $475 in interest over the 37 months it will take to pay your balance to zero.
If you were to make additional payments each month of just $50, you would pay only $349 in interest and your balance would be fully repaid in just 27 months instead. Just think about how much you could save if you could budget to pay $300 every month – you would pay just $230 in interest, and would have paid off your balance in 12 months.