How Credit Card Minimum Payments Actually Work
Your minimum payment is calculated as whichever is higher: a percentage of your balance (typically 2–3%) or a flat dollar minimum (typically $20–30). This matches the methodology used by ASIC's own MoneySmart credit card calculator. As your balance shrinks, the percentage-based amount shrinks with it — which is exactly why minimum-only repayment stretches on for years even on a modest balance. Interest itself compounds daily in Australia: your card issuer calculates a daily rate (your APR divided by 365) and applies it to your outstanding balance every single day.
The Minimum Payment Trap
Because the minimum payment shrinks alongside your balance, a large share of every payment goes toward interest rather than reducing what you actually owe, especially early on. It's entirely possible to pay nearly as much in interest as the original debt itself if you only ever pay the minimum — which is exactly what the comparison above is designed to make visible.
Frequently Asked Questions
Because that's how Australian credit card issuers actually calculate interest — your daily rate (APR ÷ 365) is applied to your balance every day, and that interest compounds. Some simpler calculators use a monthly approximation, which understates the true cost slightly.
This can genuinely happen on higher-rate cards with a low minimum percentage, and it means your balance would never reduce, no matter how long you paid the minimum — it could even grow. This calculator will flag this scenario directly if your inputs produce it.
For almost everyone, paying off credit card debt first makes more sense. Credit card interest rates are typically far higher than realistic long-term investment returns, so the guaranteed "return" from clearing the debt usually beats what you'd earn investing the same money instead.
Potentially, if you can genuinely pay off the balance within the promotional 0% period and won't be tempted to keep spending on the new card. Check the balance transfer fee (often 1–3% of the amount moved) and what the interest rate reverts to afterwards, since that's where these can quietly cost more than expected.