Calculate your credit card monthly repayments and gain control of your debt
Your monthly credit card repayment will depend on your financial priorities and preference for repaying your credit card. Your minimum monthly repayment is generally a low percentage of your total outstanding balance that you must repay every month to avoid late payment fees. In this guide we will also explain how to repay your entire balance transfer amount/ outstanding credit card balance in time before your balance transfer promotion ends to avoid interest charges.
How to calculate minimum monthly repayments when using a balance transfer offer
Every credit card repayment is made up of two parts – the payment of the purchases and the payment of the interest charges. While you are paying less interest on a balance transfer card, you may still have to account for the interest charges calculation, so follow these simple calculations to give you an idea of how much your monthly payment will be.
How much is the minimum monthly repayment?
Most credit card issuers charge a minimum repayment of around 2-3% of the full outstanding balance each month. You will need to pay this amount to avoid late payment fees and charges.
Calculate the balance portion of your repayment:
- Most credit card issuers charge a minimum repayment of around 3% of the balance each month
- On a $5,000 balance for example, the portion of your balance repayment will be $150
- You can calculate how much 3% of your balance is with the following formula : (3/100) x (your balance) = your balance repayment amount
- While you’ll need to meet the minimum repayment each month, it’s better to pay as much as you can to ensure you can repay your entire balance before promotional period ends and the revert rate applies.
Calculate the interest portion of your repayment:
- Your interest charges are added to your balance repayment amount to form your monthly payment
- On a $5,000 balance for example, with a 5.9% balance transfer interest rate, the interest portion of your repayment will be around $25
- To calculate the amount of interest included in your monthly repayment, use this calculation:(5.9/100) x (your balance) = your interest repayment amount
- The interest charges will also reduce each month as your balance decreases
Making your own calculations on the balance amount you have to transfer and adding it to the calculations of interest rates you are comparing, you can calculate the differences the interest rates can make to your monthly repayments on a balance transfer offer.
Balance Transfer Card Credit Card Offer: St.George Vertigo
The St.George Vertigo Credit Card is a great card to transfer your existing credit card debt onto. You can take advantage of a great balance transfer offer for the first 18 months as well as a low ongoing rate on purchases.
- $55 p.a. annual fee
- 1% p.a. for 12 months (reverts to 13.24% p.a.) on purchases
- 0% p.a. for 18 months on balance transfers
- Cash Advance Rate of 21.49% p.a.
- Up to 55 days interest free
How to repay your balance transfer debt before the promotion ends
If your balance transfer promotion provides 0% interest, an ideal way to repay your debt in time is to divide the total outstanding debt by the number of months provided for the promotion. For example a debt of $5,000 and a balance transfer promotion of 0% for 12 months will require a monthly payment of $416.66 in order to entirely clear the debt before the end of the promotion.
If your balance transfer promotion has a low interest rate around 2-3% p.a. you will have to repay an interest amount in addition to the principal debt amount that you have transferred. An interest rate of 3% p.a. will charge a total interest amount of $150 during the 12 month period.
Why should I pay more than the minimum repayment?
In the example above, your minimum monthly repayment would be $175 a month on a balance transfer offer with a 5.9% interest rate. If you make only the minimum payments on your card, you will pay $475 in interest over the 37 months it will take to pay your balance to zero.
If you were to make additional payments each month of just $50, you would pay only $349 in interest and your balance would be fully repaid in just 27 months instead. Just think about how much you could save if you could budget to pay $300 every month – you would pay just $230 in interest, and would have paid off your balance in 12 months.
However, there is no need to put added pressure on your finances if you can only afford the minimum payment of a balance transfer credit card. In this example, even if you only made the minimum payments you would still be better off than on your standard credit card. On a standard credit card charging the average interest rate of 16.9% you would pay $1,615 in interest to repay your balance making the minimum repayments, and take 45 months to get there.
Other factors to consider when comparing balance transfer credit cards
- Promotional interest rate. Balance transfer cards with promotional offers will charge either a 0% or low introductory rate on transferred balances. This is much lower than the standard rate of 18.00%, but you’ll need to calculate what the promotional rate is, how long the offer lasts and whether you can repay your debt during this time to ensure that the card is worth it.
- Length of promotional period. While balance transfer for life credit cards no longer exist, a long-term credit card can last for up to 24 months. Calculate how much you have to pay and whether you can repay the entire balance by the end of the promotional period to determine whether it’s the right one for you.
- Consolidation of multiple cards and high balances. If you have multiple credit card debts, consider whether you can combine them all within the one promotional offer to repay all of your debts within a single account.