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How to calculate your credit card repayments

Use our credit card interest calculator and find out how to go about clearing your debt faster.

When you receive your credit card statement each month, you’ll see both the closing balance and the “minimum monthly repayment”. While the closing balance is everything you owe, the minimum repayment shows what you have to repay by the due date to keep your credit card account in good standing.

Only paying the minimum repayment helps you avoid late payment fees, but it also means it could take you years to pay off your credit card, and lead to ongoing credit card debt, interest charges and other risks.

Credit card repayment calculator

Use an interest repayment calculator to find out how long it takes you to pay off your credit card balance, based on how much you’re paying right now.

  • The calculator gives you an idea of how much interest you pay over different periods and how many months it takes you to clear that debt.
  • You can also see how adding some extra payments can reduce how much interest you pay.
  • The most crucial part is that you’ll see how much more quickly you could be debt-free.

How is credit card interest calculated?

There are two primary forms of interest, simple and compound. There are also two parts to a credit card balance, the principal balance and the interest charges. Simple interest is charged as a fixed percentage on the principal balance, so as you pay it down, you pay less interest in the subsequent period regardless of how much you repay. Of course, this assumes you are not making any new purchases to add to the principal balance.

Providers charge compound interest as a fixed percentage on both the principal balance and the existing interest charges. Therefore, as you pay it down, you pay more interest in the subsequent period if you pay too little. So, it is critical to pay off as much of your statement balance as possible to avoid paying interest on interest.

Credit card providers calculate the interest on your credit card daily. If you do not repay the entire balance, then you are charged at the end of each month. For example, if you have a credit card with an interest rate of 27% p.a., you pay 2.25% in interest each month (which you calculate as 27% divided by 12) until you repay the balance.

What is the minimum I need to pay on my credit card?

Your card provider sets the minimum monthly repayment on your credit card. The amount varies between credit card issuers, but they typically calculate it as 2–3% (although it can sometimes be up to 10%) of your closing balance, with a minimum dollar charge of around $5 to $30.

To give you an idea of these costs, here are the minimum monthly repayment requirements of some popular credit card providers:

  • American Express credit cards. 2.5% of your closing balance or $30, whichever is greater
  • ANZ credit cards. 3% of your closing balance or $10, whichever is greater
  • BNZ credit cards. 2% of your closing balance or $25, whichever is greater
  • ASB credit cards. 3% of your closing balance or $10, whichever is greater
  • Kiwibank credit cards. 5% of your closing balance or $10, whichever is greater
  • Westpac credit cards. 2% of your closing balance or $5, whichever is greater

Whenever you get a credit card statement, your provider shows the minimum repayment amount in dollars, which means you don’t have to calculate the percentage owed if you carry a balance.

What happens if I only make the minimum credit card repayment?

If you make the minimum monthly payment, you only pay off a small percentage of your credit card debt, leaving the majority of your balance to grow with interest. Therefore, your credit card debt could cost you hundreds or thousands of dollars in interest, plus it could take years to repay. In addition, if you continually carry a balance that takes up a large portion of your overall card limit, it can also negatively impact your credit score.

Instead of only paying the minimum repayment, you should aim to either pay off your balance in full or try to clear as much of the debt each month to minimise your interest costs.

Maximising your repayment dollars

Let’s say you have a $5,000 debt on a credit card with an interest rate of 15% p.a., and you want to work out the most efficient way to pay down the debt.

The minimum monthly payment on your latest credit card statement is $100 (the greater of $20 or 2% of the closing balance), but you calculate how much you can save if you start putting money aside and instead repay $250 each month.

Minimum monthly repaymentsHigher monthly repayments
Credit card debt$5,000$5,000
Interest rate15% p.a.15% p.a.
Monthly repayment amountthe greater of $20 or 2% of the closing balance$250
Total time to pay off debt24 years 5 months2 years
Total interest paid$7,245.78$789.73
Total amount saved$6,456.05

As you can see from the table, you can save a massive $6,456.05 by making higher repayments and repay the debt in two years. However, if you were to continue only to make the minimum required payment, it would take more than 24 years to clear the debt. This demonstrates why you should always try to pay more than the minimum monthly payment if possible.

What can I do if I’m struggling to repay my credit card debt?

Suppose you’re struggling to repay your credit card debt because of interest costs. In that case, you could consider transferring it to a card with 0% on balance transfers, which means you can repay your debt without paying any interest for a promotional period (such as 0% p.a for 12 months). However, the standard cash advance rate or interest rate is applicable at the end of the introductory offer.

You still need to pay more than the minimum repayment to repay your debt before the revert rate applies. For example, if you had a credit card debt of $2,000 and a card with 0% on balance transfers for 12 months, you need to pay $250 per month to clear the debt within a year and before you start accruing interest. You may be paying more upfront, but your overall interest costs are less, and you repay your debt faster if you pay more than the minimum.

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