Why does paying only the minimum on a credit card cost so much?

Full answer

The credit card minimum payment trap is the way that paying only the contractual minimum each month keeps a balance outstanding for an extremely long time at high cost. It affects anyone carrying a revolving credit card balance, particularly on standard purchase rates which are often well above 20% APR. Minimum payments are usually calculated as a small percentage of the balance (commonly around 1% to 2.5%) plus that month's interest and any fees, subject to a small floor amount. Because the percentage is tied to the falling balance, the required payment shrinks each month, and the bulk of each early payment goes on interest rather than reducing what you owe. This is why a balance can take many years - sometimes over a decade - to clear if you only pay the minimum. Worked example (illustrative, since card APRs vary and are not set by any tax rate): on a GBP 2,000 balance at a typical high purchase APR, paying only the minimum could see you repay roughly double the original amount in interest over the life of the debt and take well over ten years to clear, assuming no new spending. Adding even a modest fixed extra amount each month dramatically shortens the term and slashes total interest, because more of every payment then attacks the principal. UK protection: since rules introduced by the FCA on 'persistent debt', if you pay more in interest, fees and charges than you repay of the balance over an 18-month period, your card provider must contact you and eventually propose a faster repayment plan. Practical steps: pay a fixed amount rather than the falling minimum, consider a 0% balance transfer card to stop interest while you clear the principal, and always pay more than the minimum whenever you can. Use a compound interest or savings calculator to model how extra payments cut the cost, and seek free debt advice if you are struggling.

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