Paying off your credit card: Fixed payments and interest


Paying off your credit card: Fixed payments and interest

If you borrow a large amount of money on a credit card, it can be all too tempting to just make the minimum repayment every month, or pay back a small fixed amount. However, this can mean that you’ll be stuck with the debt for years – and you could end up paying back thousands in interest.

How long you’ll be paying off a credit card may not be something you’ve really given much thought to, and if you’re in this position, you’re not alone. In a recent survey*, we asked respondents how long it would take to clear a £3,000 balance from a credit card with an APR of 18.9% if they only made fixed monthly payments of £50. More than two in five respondents admitted they don’t know how long this would take. Only a fifth knew how long it would actually take to pay off – approximately 11 years and 11 months – according to Money Saving Expert’s minimum repayments calculator.

Being stuck with debt for this amount of time wouldn’t just feel like a weight on your shoulders, but if you’re repaying a few cards in this way, it could also affect your credit score. Lenders may think that you already have access to too much credit, so if you try and take out a loan or mortgage in the future, you could be turned down.

Paying thousands in interest

However, being saddled with debt for years isn’t the only peril of repaying small amounts towards your credit card balance. You could also end up having to pay back thousands of pounds in interest, which can sometimes be even more than the original balance.

When respondents were asked how much interest in total they thought they’d pay on the £3,000 balance, almost half said they didn’t know, with another fifth saying they thought the total interest over the period would be less than £403. In fact, you could have to pay over £4,000 in interest, and that’s on top of repaying the original £3,000 balance. This shows just how costly it can be to repay your credit card debts this slowly, so it really pays to try and clear it faster – as long as you can afford to make bigger monthly payments.

Cutting the interest you pay

You don’t have to pay back massive amounts of interest if you’re repaying a similar balance on a credit card. In our example, just by increasing the monthly payments from £50 to £60 would cut the repayment time from over 11 years to seven years and six months, as well as slashing the total interest payment to £2,392 – that’s a saving of almost £2,000! If you were able to repay £100 a month, you’d clear the balance in three years and four months, and repay just £968 interest in total, a much more affordable amount.

Another way you could save is by moving your balance to a 0% APR balance transfer card. These are only usually available for those with good credit history, so you may not get accepted for one if you’ve had problems in the past. If you do get a balance transfer card, make sure you pay off the full amount before the 0% APR deal ends – otherwise the interest rate could skyrocket and you could end up paying back a lot more in interest.

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*OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 11th February and 23rd February 2015, of whom 635 were in Scotland.