The Minimum Repayment Trap & How To Avoid It

Avoid Making Only The Minimum Payment

For many households, personal loans and credit cards are a simple reality of modern living.

The ever-escalating cost of living combined with stagnating wages mean that many families need to rely on credit to make ends meet.

However, when it comes to credit cards, householders can make a cardinal mistake that can seriously prolong their debt and cause them to spend a small fortune on interest payments.

Opting for the minimum repayment option when setting up their new card.

Of course, we understand why the minimum repayment option is so appealing to money-conscious families.

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A lower monthly payment is easier to fit into your carefully balanced household budget.

However, as this video explains, clicking on this alluring option is exactly what lenders want you to do.

It results in more money over a longer period of time.

That’s great for them.

But potentially ruinous for you!

Understanding Minimum Repayments: How bad can it be?

Minimum repayments will vary enormously depending on how much you’re borrowing, the type of credit card product you’re using and the lender you choose.

Typically, a minimum repayment will fall anywhere between 1 and 2.5% of the total amount repayable.

However, this seemingly affordable monthly repayment likely won’t eat into the amount owed in any meaningful way.

In fact, it may barely even cover the interest owed and any additional fees and charges.

As such, you can expect your debt to be significantly prolonged when you choose minimum repayments for your credit cards.

In many cases, you may be repaying as little as $10 of your overall debt per month.

Let’s put that into context.

Let’s say you take out a $1,000 credit card to buy a new refrigerator.

You can expect the balance on this card to be somewhere near 18%.

If you select only the minimum repayment option, it could take you more than 10 years to pay the card off.

And the longer the debt goes unpaid, the more your credit rating may suffer.

The more you need to borrow, the more interest you can expect to incur.

So a credit card with a $6,000 limit might have an interest rate closer to 30%.

This means it could take over 50 years to pay off!

Avoiding the Minimum Repayment Trap

Now that we see just how damaging the Minimum Repayment Trap can be to your household finances, let’s look at how you can avoid it.

Fortunately, there are a variety of ways in which financially savvy households can insulate themselves against the risks caused by Minimum Repayments.

The most obvious (and perhaps most crucial) is to read your credit card bill carefully.

Under disclosure rules, credit card companies are legally required to display how long it will take the customer to pay off their credit card balance when only making making minimum monthly payments.

Look for the required disclosure statement on your bill.

Other tips for paying down your credit card debt early include:


  • Making your payments on time to avoid incurring fees and charges.


  • Think twice before using your card if you can’t afford to repay it in full. While nobody likes having to rely on their savings… at least doing so doesn’t result in interest charges.


  • Keep a close eye on your household budget and try to factor in card repayments above the minimum by making sacrifices elsewhere.


  • Prioritise your debts with the highest interest rates at the top.



  • Understand when your debts are beginning to spiral out of control, and be prepared to reach out for help when it’s needed.


That’s where we come in!

How can we help?

When your personal debts become too much to handle, our team of licensed experts can give you the impartial advice you need to find a solution.

Only a Licensed Insolvency Trustee can alert you to all of your options when it comes to making your debts more manageable, and we can help you to find one in your area.

Since we opened our doors in 1999, we’ve helped over 100,000 Canadians just like you to liberate themselves from the effects of personal debt.

Call us today on (877)879-4770 to arrange confidential, risk-free, and zero-obligation callback.

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