Credit Card Reforms: Minimum Repayment Information on your Credit Card Statement
Posted June 26th, 2012 and last modified September 20th, 2012
When you get your credit card statement it will now show how long it will take to pay off your debit and how much extra interest you will pay if you make the minimum repayments only.
Key points
- Credit card statements will show the time it takes to pay off your balance and the total interest payable if only the minimum repayments are made.
- 13% of Australian credit card users only paid the minimum repayment in 2007.
- This applies to all credit cards.
It’s argued that showing the minimum repayment amount on credit card statements actually makes people pay less of their card. A 2008 study by the University of Warwick, ‘The Cost of Anchoring on Credit Card Minimum Repayments’, by Dr. Neil Stewart, found that the suggested minimum repayment of two or three percent on their credit card statements lowered the actual payments people were likely to make.
For consumers this is an issue. Only making the minimum repayments on your credit card each month can extend the time it takes you to pay off your card by a lifetime.
What does this mean for you?
These changes will be applied to all credit card statements, so you won’t need to open a new account to see the effects of the government reforms.
Included in all future credit card statements will be a ‘health warning’ which shows what would happen if you stopped adding any extra charges to your credit card and focused on making repayments.
The warning will show how long it takes to pay off your card making the minimum repayments and how much extra interest you’re going to incur along the way.
Erin: a user of Creditcardfinder.com.au
Erin, 30. NSW.
Bankwest Zero MasterCard
| Credit card debt | $1000 | |
|---|---|---|
| Applicable rate of interest | 17.99% | |
| Minimum repayment | 2% / $20 |
Making the minimum repayment
If Erin was to make the minimum repayment of 2% each month, it would take her approx. seven years and nine months to pay off the principle $1000 debt. It will cost her $859 in interest.
Paying an extra $5 a week off your card
The difference in time and money when you make more than the minimum repayment
If Erin were to increase payments by to $40 a month, it will take her only 2 years and seven months to repay the same debt. Over this time she will incur $239 in interest on top of the principle.
By doubling the minimum repayment required by Bankwest, Erin is saving about $620 in interest and cutting the time it takes to pay off her credit card debt by about five years.
Not bad for an extra $5 a week.
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