Beware credit card minimum payment amounts

Every credit card bill you get will tell you the total amount you owe on your account, and the "Minimum Payment Due".

Unless you pay the total amount due, you will be charged interest.

You seem to have two choices offered - pay the full amount, or pay the minimum amount due.

Of course, you can always pay any amount in between.

If you choose to pay the minimum amount stated - BEWARE. You are choosing an incredibly expensive option.

Credit card statements rarely reveal the bank's minimum payment rules for easy reference. In the table to the right below we have provided some links.

But even after reading those, you are unlikely to realise the full extent of the costs you are setting yourself up for.

The real problem is that minimum payment amounts are generally set too low. They look good, and are easy to choose without breaking the credit card company rules*. BUT THEY ARE A TRAP.

Each time you make a minimum payment, almost all goes to pay the interest incurred and only a tiny fraction goes to pay the purchases you charged (the proportion depends on your credit card rules). And each month (if you don't add any new purchases) the minimum amount due falls by a similar small fraction.

Credit Card Calculator

Your Bank
Your Card
Interest rate on selected card is .
Your Balance
Pay-off Period
You will payoff your loan at per month.

The result is, just paying minimum payment amounts could mean you will take 50+ years (yes, years) to pay off your original purchase, and the interest you will have paid will be vastly higher than that original purchase.

This calculator shows the impact of the minimum payment choice.

It uses each bank's specific card payment rules.

Notice that the more you owe, the longer it will take to pay it off.

  minimum payment ...
  greater of or
   -----------  ----------
ANZ 3% $10
ASB 3% $10
BNZ 2% $25
Kiwibank 5% $10
TSB 5% $10
Westpac 2% $5

Minimum payment amounts for standard credit cards range from  2% of the closing balance (ANZ, BNZ, Westpac) to 5% (Kiwibank, TSB). All banks also have a minimum $ amount that will apply, ranging from $5 (ANZ and Westpac) to $25 (BNZ).

Bigger is always better - no exceptions.

And this is why.

A $2,000 charge on an ANZ or Westpac standard Visa or Mastercard , if you pay it off at the bank's minimum payment amount, will take 16 years to clear, and you will have paid $4,404 over that time. That is outrageous in our opinion, and a slam-dunk reason why you should never just pay the minimum amount.

On a similar basis, with the BNZ, you will take twenty years and it will cost $7,142 for that $2,000 original purchase.

For the National Bank, it's 15 years 3 months, paying $4,228.

For the ASB, it's 14 years ten months, paying $4,109.

For Kiwibank, it's 7 years and 7 months, paying $2,870, and for TSB its 7 years and 3 months paying $2,749.

There is a huge difference between ANZ and Westpac on one hand, and TSB on the other.

But let's not disguise the fact that taking seven years to pay off a credit card debt is a rubbish thing to do.

If you are just paying the minimum payment, chances are you have also been adding to the amount you owe with additional purchases. If that is the case, you are going backwards fast and in an even worse situation.

Use this calculator to set a target to pay it off in a reasonable time period. Rule #1 - don't add anything more to the card. Rule #2 - stick to the higher payment amount you choose.

Unless you pay them off in full each month, credit cards are generally a poor funding choice. Banks find their credit card divisions are among the highest returning parts of their business - and that's because of the types of figures we have set out above.


*   Banks argue that you should use the minimum payment facility occasionally, and only when absolutely necessary. But when have you heard a bank actually advise that?


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If you cannot pay your credit card off  before interest is added, then you should never, repeat never, have a credit card.
The banks will stitch you for the rest of your lives and you will pay over and over again for the priviledge.
It is just a rort, not quite as bad as a Pay Day loan, but which can be hundreds of % per year, but 19.95% plus is biting off the hand that You....dole out the bucks with. ...then gagging at what ye have done.
Paring the flesh off bit by bit, is borrowing cash on the damn things....That hurts even more.

If that's not a complete no-brainer Alter Ego then its an indictment of our education system that does not teach basic finances. Oh when oh when will the education system set up a small team of financial professionals (even retired ones happy to do a community service) who will vists school say one a month or quarter and educate the basics - can't leave it to teachers as many don't have those skills in their personals lives

If people had basic financial skills then Nanny State would be seen for what she is!!!

No arguments from me. I agree.
Basic finance is not what ye get from anyone here abouts, some never even learn the hard way..
Nor do most know they are being screwed. By our friendly Bankers and our even clueless regime that allows it.

Bankers will lend you money you don't need, retailers will sell you stuff you don't need, real estate agents will sell you more than you need, the whole world is designed to sell you stuff. Personal responsibility and financial nause/ ducation is a key life skill that noone can save you from if you don't have at least the basics. 

And that first sentence Grant should be Highlighted, Underlined and put in Capital Letters at the top of every page!!!!

Ah yes, credit card minimum repayments. Always in big font, and a huge earner for the banks. I mean, they must fund their debt book at 4$ and lend it out at 20%, and ok sure there are a few impairments, but 2% BNZ repayments on a 20% debt is irresponsible lending. outlines just how expensive this debt is, and how long it takes to repay - it's not pretty.

I think it all comes down to awareness and posts like this will definitely help to drive the message home but more can be done. Keep in mind if the minimum repayment amount is increased some users who are unable to make the minimum repayment might be worse off. In my opinion, what is required is for an indication of how long it will take to pay off the debt if paying the minimum repayment to be included in the statement directly by law so these people are aware of the implications of just paying the minimum. In general though, the credit card industry in New Zealand needs to step up its game. According to this article, we are getting a pretty bad deal compared to Australians. At some point, the government needs to step in with some legislation.