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What paying only the minimum really costs, and what a fixed amount a month would clear it in.

Your card

The rate on your statement. A card usually has two, and the dearer one applies to a cash advance.
The shape most cards outside the US use: a slice of the balance, so the minimum falls as the balance does.
The floor some cards put under the percentage, so the minimum stops shrinking once the balance gets small. Put 0 in for no floor.
Optional. Charged once a year and added to the balance, where it earns interest like the rest of it.

What you could pay instead

Optional, and left blank it simply shows nothing. A fixed payment is the one thing the minimum is not: the same every month, whatever the balance does.

Results

Time to clear the card, paying only the minimum
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Paying only the minimum

Time to clear
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Interest paid
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Interest as % of the balance
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Total paid
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Annual fees
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Number of payments
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Why the minimum payment is not a repayment plan

On $5,000 at 20%, the minimum is $100 and the interest is $83, which leaves $17 to come off the balance. The minimum is a slice of the balance, so it falls as the balance falls — and the fall is what the interest is charged on. That is the whole trap, and it is arithmetic rather than a trick: paying only the minimum, that $5,000 takes about 43 years and about $20,210 in interest, which is four dollars of interest for every dollar borrowed. The same balance paid at $150 a month clears in a little over four years for about $2,359. The minimum is not designed to clear the card; it is designed to keep the account in good standing.

Things worth knowing about credit cards

A few things about the card in your wallet that are mostly older than they look:

  • The story goes that the first charge card began in 1950 with Frank McNamara, who had left his wallet at home over dinner and wanted a way for that never to matter again. Diners Club settled the whole bill at the end of the month, so the card was a convenience rather than a loan.
  • The lending came later. Revolving credit — paying part of the balance and carrying the rest into next month — is what turned cards from a payment method into a business, and the minimum payment is the setting that keeps a balance revolving instead of closing.
  • A card is the only common debt with no term. A loan's repayment is worked out to clear it by a date, and that is why a loan ends. A card's minimum is worked out to keep the account in good standing, and those two jobs have nothing to do with each other.
  • The arithmetic is the same at any size. A 2% minimum on $5,000 at 20% is 43 years and $20,210 of interest; the same balance at a flat $25 minimum never clears at all, because the interest alone is $83 a month and the payment is not keeping up with it.

How does this calculator work?

A fixed payment clears a balance in a knowable number of months, which is the formula behind every loan repayment:

n = −ln(1 − rB ÷ P) ÷ ln(1 + r)

with B the balance, P the payment each month, and r the monthly rate (the yearly rate ÷ 12). A minimum payment has no formula like that, because it is not a number — it is worked out from the balance every month. So the page walks the card forward a month at a time instead:

  • Each month the interest is the balance × r, charged before the payment comes off, which is the order a statement uses.
  • The minimum is then worked out from the balance: a percentage of it with a floor, or the interest plus a percentage, or the flat amount. This is what makes the fall so slow — the payment shrinks as the debt shrinks, so it only ever takes the same thin slice of it, and the end of the debt drifts away instead of arriving.
  • The last payment is whatever is left, so the card lands on zero rather than on a fraction of a cent.
  • An annual fee is charged once every twelve months and added to the balance, where it earns interest like everything else on the card.
  • A minimum that stops covering the interest is not walked any further. Past that point the balance is flat or climbing, and the page says so rather than printing a figure for it — which is the honest answer and also the point of the page.

The arithmetic is deliberately simpler than a real statement in two ways: interest is charged monthly on the balance rather than daily, and the card is assumed to be revolving with nothing new going onto it. Both are set out in the answers below.

Where these numbers come from

  • The shapes a minimum repayment comes in, and what paying only that costs over time, are set out by Moneysmart, which is published by ASIC.
  • The average interest rate on credit cards in Australia is in the credit and charge card tables of the Reserve Bank's statistical tables. The rate that matters here is the one on your own statement.

The arithmetic is this site's own, and none of it is financial advice. If a card is worrying you rather than interesting you, the Moneysmart page above is the place to start, and a free financial counsellor is a better call than a calculator.

Frequently asked questions

Which minimum does my card use?

Read the statement rather than the summary, because it is usually written out: a percentage of the balance with a floor under it, or a percentage plus the interest charged. If it is just an amount, that is the third option in the form. Of all the boxes here, this is the one worth getting right — the difference between paying 2% and paying 4% is the difference between decades and years.

Why does a percentage minimum take so long?

Because the payment falls as the balance does. Every month the interest is a percentage of the balance and the payment is a larger percentage of the same balance, so the gap between them — the part that actually clears the debt — is a percentage too, and it shrinks at the same rate. The last slice of the balance is cleared at exactly the same leisurely pace as the first slice was: there is no point at which it speeds up for you.

What if I pay a bit more than the minimum?

That is what the second half of the results is about, and it is where this page earns its keep: everything above the minimum comes straight off the balance and never earns interest at all. On the defaults, $150 a month instead of a $100 minimum turns 43 years into about four, and $20,210 of interest into about $2,359. Put your own amount in and the two are shown side by side.

Does an annual fee really matter?

More than the amount suggests, because the fee goes onto the balance and is then charged interest every month until it is paid off. On a small balance with a floor under the minimum it can be the difference between a card that clears slowly and one that does not clear: $59 a year against a $25 floor leaves the balance going up rather than down.

Is this the same as a balance transfer or a 0% period?

No. This page assumes one rate on the whole balance and nothing new being spent. A balance transfer is a different calculation with an end date on the cheap rate, and the useful way to run it is at the rate that applies after the offer ends, with the whole balance still sitting there. The offer rate is the part that is easy to like; the rate after it is the part that decides the answer.

How accurate is all this?

The shape is exact and the last dollar is not. A real card charges interest on the daily balance, rounds the minimum, and gives you an interest-free period on new spending which this page does not model because it assumes the balance is simply revolving. What it does get right is the thing worth knowing: the difference between four years and forty-three years is not a rounding error.

More calculators

Personal loan The same arithmetic on a debt that ends on a date. Compound savings What the same amount a month becomes if you keep it instead. Budget What the payment leaves you each week or month.
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