Credit card interest repayments – How much should you repay each month?

Information verified correct on September 28th, 2016

When making credit card repayments most people spend more then they should. An understanding of the real costs of interest can help you avoid this situation.

Credit card interest repayments are tricky. Many people do not realise how costly these fees can be when the take out credit cards. Sadly, the lack of understanding of interest rates and the dollar value that they translate to contributes to mounting debt. Most people spend on their cards with the intention of paying off the debt in the short term. But, in many cases the inevitable happens and the card owner is unable to pay off the debt as quickly as expected or worse they overspend and then can not pay off their purchases at the end of the month. With the economy in a tailspin, it is more important then ever for consumers to understand how interest effects their bottom line and how to get control of their money.

Being careful with how you use your credit card and even more diligent about repayments can save significant amounts of cash.

Breakdown of credit card interest repayments

  • Most credit cards allow you to make a minimum payment each month that is a very small percentage of your balance. The problem is these low payments only allow a bit of your money to go to the balance and a large part goes toward the interest on your balance.
  • If you have a $1000 balance on your card and you make the minimum payment, an average of 2.5% you payment breaks down to $13 to interest and $12 to your debt.
    • At that rate of credit card interest repayments it will take you eleven years to pay off your original $1000.
    • During those eleven years you will have paid $860 in interest charges, almost double the amount of your original balance.
  • Notch that number up to a $10,000 debt at a 2.5% minimum payment and each month $133 goes to interest and only $155 to your balance.
    • By doing that it will take twenty-seven years for you to pay off the original $10,000.
    • By the time the bill is cleared you will have spent $11,000 in interest payments, more then twice your original debt.
  • You can avoid interest fees by paying off your full balance each month.
  • If you are unable to pay off your balance you should at least double the amount of the minimum payment.
  • By doubling the amount you pay, $50 on a $1000 debt and $500 on a $10,000 debt you can clear the debt in two years and save loads of cash in interest fees.

Understanding how much you will spend on credit card interest repayments is a key lesson for any credit card owner. Once you realise how much each purchase will cost in the long term you will probably make wiser decisions about your expenditures as well as your repayment schedule.

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2 Responses to Credit card interest repayments – How much should you repay each month?

  1. Default Gravatar
    Dupri | August 10, 2016

    Hi dear

    current balance $18,000 interest rate 20.99%, minimum payment $500 monthly, time will be 12 months
    How long show I paid off the balance if I make the $500 monthly payment

    • Staff
      May | August 10, 2016

      Hi Dupri,

      Thank you for your question.

      Since credit card repayments are complicated, this minimum payment each month will only allow a bit of your money to go to the balance and a large part goes toward the interest on your balance. So, to avoid interest fees, you’ll need to pay off your full balance each month.

      However, if you’re unable to pay off your balance, the best thing to do is you pay at least double the amount of the minimum payment. By doing so, you’ll be able to clear the debt in a shorter period and save heaps of cash in interest fees.

      So using the Credit Card Reduction Calculator found on this page, for your $18,000 balance, if you will just pay $500 monthly without extra payments, you will approximately be able to finish paying your credit card balance in 58 months and you will have to pay approximately $10,646.10 on interest – which obviously a huge amount of interest.

      Please note though that the calculator will give approximate results only, however, this might be able to help you understand your monthly credit card repayments so you can pay your outstanding credit card balance quicker.

      I hope this has helped.


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