If you only pay the minimum due on your credit card you will remain indebted for decades.
The Australian government’s website MoneySmart.gov.au has a very handy calculator that shows you how long it will take you to pay off your credit card based on what percentage of the total debt you pay each month.
The really scary figure is how long it would take you to pay off your credit card if you just paid the monthly minimum required.
In South Africa the average interest rate on a credit card ranges from 20% to 25% and the minimum repayment required each month is between 3% and 5% of the capital.
If you owed R20 000 on your credit card, had an interest rate of 20% and only paid the minimum amount each month of 3%, it would take you nearly 25 years to pay off your credit card over which time you would have paid the bank R43 600.
The higher the interest rate the worse that figure becomes. If you have an interest rate of 25% it will take you nearly 34 years to pay off the card and you would pay R61 600 to the bank.
If you wanted to pay off your card in two years you would need to pay R1 046 per month. By the end of the two years you would have paid the bank R25 000 which is nearly R40 000 less.
Only paying the minimum amount on your credit card is just not a viable financial option.