Credit Card Minimum Payments Explained | Finder NZ

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

Credit card minimum payments explained

Making minimum payments versus paying off your full credit card bill — which to choose?

If you can’t pay off your credit card balance in one go, you have the option of choosing minimum payments instead. In New Zealand, minimum credit card payments amount to 2-5% of your total bill.

While making credit card minimum payments helps you spread out your expenses, it can be an expensive affair. The balance you owe is charged an interest that could add up over time. This guide will help you navigate minimum versus full credit card payments, as well as compare the minimum payment terms of providers in New Zealand.

Comparing credit card repayment options

Your credit card bill displays the total balance due, alongside the “minimum payment” due. You can generally choose between three options for repayment — pay the entire balance in full, pay the minimum as stated on your statement, or make a payment for another amount.

Let’s consider each option:

  • Pay the amount in full. Paying the total amount owed can help you avoid interest charges on your credit card.
  • Pay the minimum amount. The minimum repayment amount listed on your credit card statement is the smallest amount you can pay while keeping your account in good standing – usually, around 2-5% of the total owed. However, your remaining balance owed is subject to an interest of approximately 20% per annum, which makes repayments expensive in the long-term and could put more debt on your plate.
  • Pay another amount of your choosing. Similar to credit card minimum payments, this option allows you to pay less in the short-term in exchange for higher long-term repayment interest rates.

Some credit cards also give you a fourth, more structured option for repayments:

  • Instalment plans. If your credit card offers instalment repayments, you could pay off your balance in fixed monthly amounts, over a set period. For example, if you owe $2,000 on your card, you might set up an instalment plan and pay $200 per month for 10 months. Sometimes you can also get a reduced interest rate on the balance.

How do credit card minimum payments work?

To make a minimum payment on your account, identify the “minimum payment due”, then use one of the repayment methods listed on your credit card statement. For example, direct transfer.

You can pay the minimum amount once before the due date listed on your statement, or make several payments throughout the month. As credit card interest is charged daily, making more frequent payments helps reduce your balance and interest charges for the next billing period. It also means you can plan repayments around your payday – whether it is weekly, fortnightly, or monthly.

However, making minimum payments doesn’t stop you from accruing interest on the remainder of your balance. So, if you continue using your credit card for purchases, your next statement will have a higher balance, higher minimum payment amount and more accrued interest.

Are credit card minimum payments a good idea?

While credit card minimum payments help you stay in good standing with the bank when you cannot pay off your full bill, this choice does come with its risks. In general, the smaller the minimum payment amount, the more you end up paying in the long-term. In some cases, this accruing debt could lead to a vicious cycle of continuous payments.

Let’s take a look at an example:

  • Consider that you have a $1,000 credit card bill, with a minimum payment of 2%, which means you pay $20 on the due date.
  • Assuming a credit card interest rate of 20%, your additional interest charge is 20% of ($1000 – $20)/12 which is approximately $16. That means that instead of paying the remaining $980 you owe, your next payment will be $996.
  • If you had, instead, paid off a minimum amount of 5%, your additional monthly charges would have been lower. In the long-term, your total amount paid would also have been significantly lower, regardless of how long the interest repayments took.

As such, while credit card minimum payments help you pay the bare minimum each month, they could cost you in the long-term. You should opt for a payment amount that both meets your financial needs and reduces your long-term debt.

How can I save on interest charges while making minimum payments?

There are a few tips you can use to keep credit card interest to a minimum while you pay off your balance. These include:

  • Paying as much as you can off the balance. Even if you can’t pay the full balance on your credit card, paying the highest amount affordable to you helps you save on interest. You can use a credit card repayment calculator to see how much different payment amounts could help you save.
  • Consolidating your accounts. If you have more than one credit card, consolidating them into one account could help you save on both fees and interest charges.
  • Setting up an instalment plan. Some credit cards may offer a reduced or promotional interest rate if you set up an instalment plan for your balance. You can see if this option is available by logging in to your credit card account or by contacting your bank.
  • Getting a balance transfer card. These credit cards offer a low-interest rate on the debt that you transfer to the new account. This gives you a window of time when you can make payments towards your balance.

Frequently asked questions

Images: Shutterstock

Back to top

More guides on Finder

  • Uber Eats delivery driving – a guide

    We breakdown the benefits of Uber Eats delivery driving, including how much you can earn and what you need to do it.

  • Finance Bloom secured personal loan review

    Finance Bloom secured personal loan review. Find out about rates, features and more.

  • Credit cards vs buy now pay later

    Both buy now pay later plans and credit cards give you ways to pay off purchases over time – here’s how they compare.

  • Finder Credit Card Awards 2021

    More than 1,100 Kiwis assessed their credit card provider for value for money, rewards and features and more in the Finder Credit Card Awards 2021.

  • Finance Bloom business loan review

    Broker Finance Bloom can help you get a secured or unsecured loan to help your business bloom.

  • A snapshot of women and money in 2021

    From investing to property, Finder takes a closer look at women and their finances as part of International Women’s Day.

  • First Credit Union review

    Review the loan options at First Credit Union, a non-bank lender offering personal loans, debt consolidation, car and home loans.

  • What is a novated lease?

    If you want to reduce your taxable income but get something for it, such as your next car, you can consider salary sacrificing it with a novated lease. Find out exactly how it works and if its right for you.

  • Best credit cards for overseas travel

    Compare credit cards that offer no foreign transaction fees, complimentary insurance, Airpoints and airport lounge passes so you can find the right card to take overseas.

  • Uber car rentals

    Renting a vehicle to drive with Uber gives you an easy way to get an eligible vehicle as well as have your insurance covered. Find out how it works and how to sign up today.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked
Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use, Disclaimer & Privacy Policy.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site