The minimum payment is the lowest amount you must pay each month to keep your account in good standing. While it helps avoid late fees and protects your credit rating, it does little to reduce your overall balance.
1. Minimum payment calculation: This is typically a small percentage of your outstanding balance—often between 1% and 3%—though exact figures vary by issuer.
2. Interest and fees: Your minimum payment may also include any accrued interest, late payment charges, or annual fees. These additional costs can increase the required amount.
3. Fixed minimum amount: Many card providers apply a minimum payment floor—commonly between £5 and £25. If the calculated percentage is lower than this amount, you’ll be asked to pay the fixed minimum instead.
For example, if your balance is £1,000 and the card requires 2%, your minimum payment would be £20. But if your card’s minimum floor is £25, then £25 becomes payable that month.
While making the minimum payment keeps your account in good order, it does not significantly reduce your debt. Relying on minimum payments alone can extend repayment over many years and result in paying far more interest overall.