Why it's better to pay over the minimum on your credit card

If you are thinking about taking out a credit card or you already have one, you might be wondering what the best way to use this is. Should you always pay off what you borrow straightaway or can you use a card to spread the cost of a purchase?

Credit cards can be useful to have in your wallet to make purchases if you want to cover the cost of something and pay it off later. They can be beneficial if you want to build up a strong credit history – as long as you use them responsibly. Let’s take a look at the different ways you can use your card and how you can avoid paying too much on interest charges.

Pay back your full balance

Whenever you use a credit card to borrow money, you’ll have an interest-free period. This means that you can borrow and as long as you repay within this timeframe, you won’t pay any interest on your balance. The terms and conditions will differ with each lender, but the rule of thumb is a 56-day window to pay off the credit card balance without being charged interest. Make sure to check this with your credit card provider though – some can give you longer interest-free windows and some can give you shorter.

Keep in mind that this period isn’t for each purchase you make – it’s a certain amount of days after the start of your statement period. Check on your credit card statement to see when you’ll need to pay back by to avoid interest charges. So if you borrow £100 to make a purchase and pay it back on or before the date your card provider shows on the statement, you’ll pay back £100.

Paying back less than the full balance

But what can you do if you can’t afford to clear your full balance before the end of the interest-free period? You’ll have a minimum amount you’ll need to pay towards your credit card balance. This can be a minimum amount – like £25 – or it can be a minimum percentage of the balance – such as 5%. As long as you’re paying this off, you’ll avoid any missed payments charges.

But if you only pay the minimum on your credit card balance, it can take you a long time to pay off and cost you a lot in interest payments. The Money Saving Expert minimum repayments calculator can help you work out how much you’ll have to pay if you attempt to clear a balance by only paying the minimum every time.

For example, if you’ve got a balance of £500 on a credit card at 18% APR and you’re making a minimum payment of 2% of the balance or £5, it will take you 16 years and three months to pay this off. And what’s more, you’ll pay back £723 in interest!

Even if you can afford to pay just over the minimum on your credit card, you’ll still help to reduce the amount of interest you’re paying dramatically. It’s worth looking at your household budget and seeing if there are any areas where you can cut back for a few months so you can afford to clear what you owe on your credit card.

As we explained, it’s all about making sure you’re using a credit card responsibly – you don’t need to think you shouldn’t get one at all. If you’re looking to spread the cost of your purchases, the thinkmoney Credit Card could be a good way to do this. And what’s more, you can use the QuickCheck feature to see if you’ll be accepted before you apply.

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