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THE minimum monthly repayment on a life of balance transfer credit card would vary depending on the amount that you owe as well as on the minimum repayment rate charged by the card provider.
The minimum monthly repayment rate is a percentage amount of the balance owing, the actual rate varies between cards, but it usually ranges between 2% and 3%.
To know exactly how much your minimum repayment would be it can be worked out with fairly simple maths; the minimum repayment rate divided by 100, and then multiplied by the balance owed.
For example, based on a balance of £5,000 and a minimum monthly repayment rate of 3%, the minimum payment each month would be approximately £150. For a balance of £2,500, the minimum payment would come in at around £75 per month.
Here's the math:
(3 / 100) x 5000 = 150
(3 / 100) x 2500 = 75
Of course, the minimum amount that you will have to pay each month will drop as your balance reduces: 3% of (£5,000 - £150) = £145.50.
The above calculations are relative examples, as they don’t take into account the interest charged on the balance, and so the first minimum monthly repayment would actually be a percentage of the initial balance plus the interest charged for that month.
Remember the interest
Life of balance transfer credit cards offer a considerably lower rate of interest on balance transfers compared to the standard interest rate charged on most credit cards.
While life of balance transfer credit cards do not offer a 0% rate - the promotional rate they do offer will last until the balance is repaid in full. The main benefit of this being that you can just make the minimum monthly repayment to keep your outgoings down without fear of an ending rate offer period.
However, because these cards do charge some level of interest on the balance owed it is important to bear this in mind when working out how much the minimum monthly repayments are going to be.
For example, if you have a life of balance transfer credit card that charges 5.9% per annum, you will be charged approximately £25 in interest each month on a balance of £5,000, or £12.50 in interest per month on a balance of £2,500. Of course, the interest charged each month will reduce as you pay back the balance – and you can cut the total amount of interest paid by increasing your monthly repayments.
Paying back more than the minimum
While life of balance transfer credit cards offer the luxury of an endless promotional rate, the longer you do take to repay the balance the more interest you will also have to pay over the term of the debt.
You can in fact make a significant impact on the amount of interest that you will pay by increasing your monthly repayments to more than the minimum amount requested.
For example, on a 5.9% per annum credit card, and based on a balance owed of £5,000, you would pay £475 in interest over a period of 37 months if you make just the minimum monthly repayment until the balance is cleared in full.
However, by increasing your monthly repayment by just £50 a month to a monthly repayment of £200 per month, you’d cut the total interest paid to just £349 – a saving of over £125 – and you’d be free of the debt ten months quicker.
If your budget would allow it, you could save a further £110 – making a total saving of £235 compared with a minimum repayment – by repaying £300 per month, leaving the total interest paid at just £230 over a period of just 18 months. Of course, if you could afford to repay this much you might save even more money with a 0% balance transfer credit card – especially now they can be found with 0% periods of up to 15 months.
Minimum outgoings still offer huge savings
Even if you are only able to afford to pay back the minimum amount each month, you will still be saving a huge fortune in interest charges compared to the amount you would be charged on a standard rate credit card account.
If you were repaying just the minimum on a balance of £5,000 on a standard rate credit card charging a typical 16.9% per annum, you would end up paying £1615 in interest by the time the balance was repaid – 45 months later!
Switching to a life of balance transfer credit card and still repaying just the minimum would offer a staggering potential saving of over £1,100 – and you’d be debt free 8 months sooner!
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