Barclaycard is reducing the minimum payment its credit card holders must make each month from July, but although this might sound like good news, it means customers could end up in debt for much longer.
The changes, which come into effect on 22 July 2024, will apply to all Barclaycard holders, and will see minimum payments alter from a “tiered” structure – where cardholders repay between 2.25% and 4.25% of their overall balance – to one that factors in interest and fees.
Cardholders from July must repay the highest of either 1% of their balance; 1% of the balance plus any interest, default fees or account fees; or if the total outstanding balance owing on the card is less than £5, it must be paid off in full.
Martin Lewis, founder of MoneySavingExpert.com, said: “This is a worryingly under-the-radar change by the UK’s biggest credit card provider. Changing minimum repayments looks innocuous, even trivial – most customers will, I suspect, have ignored it.
“Yet this seemingly technical and bland change is a huge danger signal. I wish I could light up the sky with neon signs shouting that, for those unaware, if paying interest on their credit card debt, it can easily double the total cost of debt by the time you clear what you owe, meaning you pay £100s or £1,000s more.”
According to research from the financial regulator, the Financial Conduct Authority, more than one and a half million people only pay the minimum on their credit card each month. But this is a bad idea as it can take decades (literally) to pay off your debt, and mean you end up paying hundreds, if not thousands, of pounds more in interest than if you’d paid off more than the minimum.
Here, we explain everything you need to know about minimum payments and why it’s crucial to pay off more than this whenever possible.
Contents
- What is the minimum payment?
- How much is the minimum payment?
- Where is the information about the minimum payment?
- How quickly will my credit card balance be paid off if I pay the minimum?
- I can’t afford to pay off my credit card debt in one go, so should I pay the minimum in the meantime?
- What if I’m struggling to make any payments?
What is the minimum payment?
The minimum payment is the minimum amount you have to pay your credit or store card company each month in order to keep to the terms of the agreement. If you don’t make the minimum payment you could be charged fees,and you could lose any preferential rates (for example, if you’ve transferred a balance to a 0% credit card deal).
If you miss several minimum payments, you could find your credit card agreement is in ‘default’, which means your card could be taken away from you and you may be asked to repay your credit card debt in a relatively short period of time.
How much is the minimum payment?
The amount of the minimum payment varies between credit card providers and between credit cards and store cards. If you have a credit card the minimum payment may be 1% of the balance plus any interest and charges, or it could be a more straightforward figure, such as 2.5% of the overall balance.
There’s normally a minimum figure of £5, so if your credit card balance is quite low and you only pay the minimum, you’d never pay less than £5.
If you have a store card, the minimum payment is typically 4% of the amount you owe. The reason that it’s higher is because the interest rate on store cards is typically higher (often 29% compared to 18% or 19% for credit cards). Generally, the credit limit on store cards is much lower as well so paying 4% of your balance could be a lower amount than 2.5% of your credit card balance.
Where is the information about the minimum payment?
Your monthly credit or store card statement will tell you how much the minimum payment is in pounds and pence and when you have to make this payment by.
How quickly will my credit card balance be paid off if I pay the minimum?
That will depend on how much you owe on your card, and what the card’s minimum payment is, but the numbers can be pretty terrifying. For example, according to the Card Costs Calculator produced by the UK Cards Association, someone owing £1,000 on a card which charges an annual percentage rate of 18.9% and with a minimum payment of 1% of the balance plus interest and charges would take 18 years and six months to pay off the card. Worse still, they’d pay £1,265 in interest, which is more than the original amount borrowed.
I can’t afford to pay off my credit card debt in one go, so should I pay the minimum in the meantime?
No! If you can’t afford to clear your credit card debt in a couple of months, pay what you can. Even a relatively small increase will make a big difference. For example, if you pay an extra £25 each month, and using the same assumptions as above, you’d clear the debt 13 years and five months sooner, and save £756 in interest charges.
What if I’m struggling to make any payments?
If your income has fallen or stopped for any reason, you might be worried about not being able to cover minimum payments, let alone pay off a larger sum each month.
If you are struggling, let your card provider know as soon as possible. They might be able to provide support, for example, offering you a payment holiday whilst you get back on track financially.
If you don’t find them helpful, there are plenty of free sources of advice available and many charities and organisations can help you negotiate debt repayment plans with your creditors on your behalf. These include:
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
- PayPlan – 0800 280 2816
Whatever happens, don’t suffer in silence, as struggling with debts on your own can take a real toll on your mental health. If you are finding it hard to cope, our article Are money worries affecting your mental health? explains where to go for help if you need someone to talk to.
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