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Credit card minimum and part payments explained

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

If you can’t repay your total credit card balance in one go, you have the option of paying off part of the balance instead. This amount could be the minimum amount listed on your credit card statement or any amount above the minimum.

When you make a minimum payment, the remaining portion of your credit card balance usually attracts interest charges – unless you have a card that offers a promotional 0% p.a. interest rate for your balance.

Comparing credit card repayment options

Your credit card bill displays the total balance due, alongside the “minimum payment” due. You typically have three choices for repayment:

  • 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 3% of the total owed. However, only paying the minimum increases the risk of higher costs and long-term debt.
  • Pay another partial amount of your choosing. Making a part payment is one way to reduce your credit card balance more effectively than paying the minimum repayment.
  • Pay the account’s closing balance in full. If you pay the total owed, you can avoid interest charges on your credit card.

      How do minimum and part payments work?

      A minimum or part payment lets you keep using your card and prevents you from attracting any late fees or other penalties. In addition, because interest is charged on your outstanding balance, reducing your balance with a part payment reduces the interest charge.

      How do I repay the minimum or part of my credit card balance?

      To make a minimum or partial payment on your account, choose the amount you want to repay on your card and then use one of the repayment methods listed on your credit card statement—for example, direct transfer or cheque.

      You can make a part payment once, before the due date listed on your statement, or make several part payments throughout the month.

      Providers charge credit card interest daily; making more frequent payments helps you reduce your balance and interest charges for the next billing period. It also means you can plan repayments around your payday, whether weekly, fortnightly or monthly.

      However, making minimum or part payments doesn’t stop you from accruing interest on the remainder of your balance. You also lose the benefit of any interest-free days for the next billing period.

      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.

      Is making a part payment a good idea?

      While it’s ideal to pay off your entire credit card balance by the due date on each statement, that’s not always possible. So there are times when making a part payment can give you some financial breathing space while also reducing your balance over time.

      Making a part payment can be a better option than only paying the minimum amount due on your statement – as you’ll see in the example below.

      Example: How a part payment could help you pay off your credit card

      Say you have a $5,000 balance on a credit card with a 19.99% p.a. interest rate and a minimum payment amount of $30 or 3% of the balance (whichever is greater). If you only make minimum payments, it will take you just over 14 years to clear the balance and cost you around $5,466 in interest charges.

      In comparison, if you make a part payment of, for example, $400 per month, it will take you about 1 year and 3 months to repay the balance and cost you around $653 in interest. That’s a difference of 12 years and 7 months and $4,813 in interest charges compared to only paying the minimum amount.

      Bear in mind that this example doesn’t take into account any other purchases or fees. However, it gives you an idea of the potential value you can get from making a part payment instead of the minimum amount on your credit card.

      How can I use part payments for multiple credit card debts?

      Having debt on a few credit cards can make it more challenging to repay your whole balance. Here are some strategies where you could use part payments to deal with multiple credit card debts.

      • Pay the balance with the highest interest rate first. With this strategy, you pay as much off the card that charges the highest interest rate and make minimum payments on the other cards. Then, once your part payments have cleared the balance on the card with the highest rate, you can focus on repaying the next one.
      • Pay off the lowest balance first. Sometimes known as the “snowball method, “ this option lets you order your debts from the smallest to the largest amount. Then, you pay the minimum repayment on all debts except for the smallest, which you make part payments on until repaid. Once you repay this debt, you can put part payments towards the second-smallest debt while continuing with minimum payments on your other debt. This method can help you track your goals and progress, making it easier to stay motivated.
      • Pay off the card you want to cancel first. For example, if you have debt on a credit card that you no longer wish to use, you could focus on paying it off so you can cancel it as quickly as possible.

      With any of these options, you still need to pay at least the minimum amount listed on each of your credit card statements. In addition, every credit card likely has a slightly different due date, which means you could end up making repayments at other times throughout the month. Finally, your credit card provider also charges interest on each credit card until you repay the balance.

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

      You can use a few tips and strategies if you want to keep credit card interest to a minimum while you pay off the balance. These include:

      • Paying as much as you can off the balance. Even if you can’t pay the total balance on your credit card, paying the highest amount that’s affordable for you helps reduce the debt and save on interest as a result. You can use a credit card repayment calculator to see how much extra part payments 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.
      • Getting a balance transfer card. Balance transfer credit cards offer an introductory low or 0% p.a. interest rate on the debt you transfer to the new account. The introductory period in New Zealand is typically 6 months for a low or 0% p.a. balance transfer offer. Other providers offer a low rate, for example, 5.95% p.a. for the life of the balance. This period gives you a window of time to make part payments towards your balance with reduced or no interest charges.

      Any part payment higher than the minimum amount listed on your credit card statement helps you reduce the balance and subsequent interest charges. However, remember that paying more off your card enables you to clear the debt faster and reduce interest charges.

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