Minimum & Extra Payments on Your Credit Card

If you’ve read my posts Becoming Credit Card Free: Our Journey Part 1 and Part 2, you’ll know that we are on our way to becoming completely credit card free in just a few more months, if all goes according to plan. I cannot wait! And on that note, I wanted to share with you a few of our experiences on making minimum and extra payments on our credit card each month.

Most people I know have a debit order loaded on their cheque account so that they can pay the minimum balance due on their credit card, usually at the end of the month. Now let’s say your minimum amount due is R500.00 for the month of April. You budget and decide you are going to pay the R500.00 through your debit order and you can afford to pay an additional R600.00. So you make the extra payment of R600.00 to your credit card provider and wait for the debit order to go off for the month. But guess what? It doesn’t. Why? Well, the credit provider has decided that you have already paid the minimum payment due when you paid the R600.00. This has happened to us.

I first read about this on a personal finance blog which mentioned this very same issue that they had with one of their credit card providers in the UK. I didn’t think much of it at the time nor did it occur to me that this would be the case with our credit card provider. We had to phone the credit provider only to be told that this is exactly what they are doing now. I don’t know if this is the case with your particular credit card provider but it certainly is the case with ours. It’s something new that they have implemented. For you, as the consumer, this means that you would need to check if this applies to your credit card account as well so that you can plan accordingly.

If you don’t, then this is the scenario you can expect. Let’s go back to our numbers from above. Out of the R600.00 you’d paid thinking it was an ‘extra payment’, you would have paid your minimum amount due which is R500.00 and only R100.00 ‘extra’. Out of this R500.00 you would have paid roughly half that amount, R250.00, towards your principal debt and the other half of R250.00 towards interest and fees. So your principal debt would only decrease by R250.00 + R100.00 = R350.00. Had the R500.00 debit order gone off your cheque account as you thought it would, and you had paid an extra R600.00, this would mean that R250.00 would have been paid towards interest and fees and a total of R250.00 + R600.00 = R850.00 towards your principal debt. So your overall balance would have reduced by R850.00 and from that point on the interest accrued would have been calculated on the reduced total amount owing.

Bear in mind that interest on your credit card debt is calculated and accrued daily which means that the longer this higher balance sits in your credit card account, the higher the amount of interest that’s going to be calculated on each of those days. This will in turn increase the minimum amount due on your credit card at the end of that month. In our case, we had accrued more interest on a higher balance on each of the 3 days while we were waiting for the debit order to go through. At first we thought it was just a delay or a glitch in the system, which it turned out that it wasn’t. But had the debit order gone off on the due date, we would have accrued less interest and therefore paid less overall at the end of the month. We’ve not made that same mistake since, I’m happy to say.

And if you are making extra credit card payments, like we are, I hope you are considering using EFT to do that which involves no additional banking fees. We’ve sometimes had to use the ATM machine for payments and this has incurred extra banking charges which comes straight out of our pockets! I would get so mad afterwards just looking at the bank statements. Are those huge amounts of interest we pay to credit card providers not enough? Do they have to take that extra R10 or R20 or R30 or whatever the case may be? Is that meant to be a form of punishment for being responsible and making extra payments each month towards your credit card? It certainly felt like punishment to me so we avoid ATM machine deposits as much as possible.

To add insult to injury, so to speak, just a couple of weeks ago we received a phone-call from this particular credit card provider. They called to offer us an ‘increase in our credit card limit’. It took us all of half a second to say – NO! Thank you but NO, thank you! Later on in the day, my husband and I were discussing the phone call and we just couldn’t help but laugh! They couldn’t have called at a worse time – for them – to offer us an ‘increase in our credit card limit’. Tough luck. We’ve had enough of making someone else richer and ourselves all the poorer.

Do you have any advice for making the most of minimum and extra payments on your credit card? I’d love to hear your ideas! Please leave me a comment below.