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Credit cards: minimum payment level - 1% since April 2011

Last Edit: 05/09/18

A question was recently posed: Has the minimum payment level changed for UK credit cards ever changed? The answer to that question is that, yes, it did. From April 2011, new credit cards had to have a 1% minimum payment threshold that will need to be paid per month: 1% of the balance plus that month's interest, and fees. Before April 2011, credit card issuers were able to set their own minimum payment structure; which tended to be lower than 1% of the balance and the interest accrued; typically a minimum payment level that just covered fees and interest charges.

Due to the pressure put upon them by consumer watchdogs and regulators, the majority of credit card providers applied the above minimum payment structure to all of their existing credit cards. You may ask why credit card providers set their minimum repayment level so low: a cynic would surmise, the longer a customer is paying off the debt, the more interest they need to repay, and the more profit there is for the credit provider.

Even with the current minimum repayment structure of:

While a minimum payment level may look to be a responsible structure to put in place, card owners should not assume its the 'right' fit for them, in many cases repaying a fixed amount per month will result in a balance being cleared quicker, and with less interest being paid. It is always wise for consumers to use a payment calculator to compare which payment structure is best suited to their needs. It has been claimed that sticking to a minimum repayment will keep a card owner in near perpetual debt.

The minimum payment level does vary between credit cards, with two examples highlighted below:

  1. Halifax Online 36 Month Balance Transfer Credit Card Mastercard: "Each month in which you have a balance outstanding on your account you must repay an amount equal to the total of any Credit Card Repayments Cover premiums, interest, default sums plus 1% of the balance shown on your statement (minimum £5, or the full balance if less than £5)."
  2. Tesco Bank Clubcard Credit Card for 36 Month Balance Transfer Mastercard: "Greater of 1.0% or £25.00 each month. The greater of: the total interest & default fees charged + 1% of the new balance (excluding 'Tesco Buy Now Pay Later' special offers) + any arrears; or £25 plus any existing arrears; or the amount you owe over your credit limit including over limit fees."

In conclusion, its in the interest (no pun intended) of card owners to repay their balance as quickly as possible, therefore, while 1% of the balance per month is better than paying off none of the balance, it can result in card owners paying their debt off over years, if not decades. Ideally, a card owner should be clearing a far higher percentage of their balance per month.