Credit card payment

By Mozo ·

You may look at your monthly statement and think that it’s in ‘google gog’ but don’t stress as we’ll demystify all things relating to credit card payments to have you understanding your bill in no time. We’ll even have you saving money by the end of this guide!

How is the card balance calculated

Your credit card balance is based on purchases you have made during a defined month e.g. groceries, entertainment etc. On top of the purchases you have made, the card balance may also include interest. If you have paid the credit card balance in full each month, the balance will only be the sum off all your expenditure. However, if you have not paid off the previous month's balance, then interest will be included. Find out when you’ll be debt free with our nifty credit card debt payments calculator.

How is the interest calculated each month?

There is a little mathematical equation to calculating the interest owing on your credit card purchases. The good news is you don’t have to do the maths! There’s no harm however in knowing how the interest is calculated each month.

There are three components:

  • Annual percentage rate (APR)
  • Daily rate (APR divided by 365 days in a year)
  • Daily balance

The formula: The outstanding daily balance multiplied by the daily interest rate of your card multiplied by the number of days in the month.

For example: If you owe $2000 on your credit card at 31 January (i.e. month end) with a 15% interest rate, the calculations go like this; $2000 x 0.041% (daily percentage rate) x 31 (number of days in January) = $25.42 (interest owing). Just think, if you had to pay $25.42 in interest each month, that’s just over $300 a year! Pay your credit card back in full each month and you could pocket that $300.

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Credit Card Comparison Tale - page last updated October 26, 2020

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Key credit card bill terminology:

  • Interest-free days: Have to love a freebie! Interest-free days is a period of between 44 – 62 days of which you can pay off the full balance on your credit card without incurring interest charges. The interest-free days apply from the start of your billing cycle, not from the date you make a purchase. Make the most of the opportunity to avoid paying interest, if not it will just keep on accumulating! Compare interest free credit card right here.
  • Interest rate: Without complicating things, quite simply, this is the amount at which interest is charged on the outstanding balance on your credit card.
  • Minimum repayments: This is the minimum payment you are required to pay off your balance each month. Take note, just because you pay the minimum amount owing on your statement, doesn’t mean you will avoid interest charges. We go into more detail on minimum payments below.
  • Balance transfer rate: This is a fee you will be charged when you transfer outstanding debt from one credit card over to a new card. This charge can be anything from 1% - 5% of the balance amount. Compare balance transfer credit cards.
  • Revert Rate: The credit card revert rate is the interest rate your card will turn to once the ‘honeymoon period’ is over. Having initially enjoyed a low or zero interest period, you will now revert to a much higher rate which will be ongoing.

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Making credit card repayments

When you receive your monthly credit card statement you’ll find a lovely big bold figure at the bottom of the page - this is your closing balance. You can make this payment in full or you have the option of making a minimum repayment. Whenever you can, we strongly advise that you pay the full balance owing on your credit card and that way you will avoid paying interest on your purchases.

However if you can only afford to make the minimum repayment there a few important facts you need to know:

  • The minimum payment is usually 2% of the closing balance or $10, whichever is the greater
  • Your statement will include the minimum amount owing
  • If you pay the minimum amount by the due date you will avoid a late fee
  • Paying the minimum amount may not actually reduce your card’s balance as most of the amount is paying interest
  • If you don’t pay the minimum amount your provider may put a freeze on your card
  • Only paying the minimum amount means you will never become debt free
  • When you pay the minimum amount you’ll then be charged a month’s worth of interest on your balance each day for that statement period .

How long it will take you to pay off your credit card?

Setting a repayments budget

As you have just read above, paying only the minimum amount on your credit card statement each month has its downfalls. So to dodge interest charges and to pay off your credit credit quickly in order to become debt free, we highly recommend you do a repayments budget. It’s important to have self-control and to stay within the means of your credit card. So, don’t over spend! A repayments budget is especially vital for those who have irresponsible financial habits. A budget is also crucial to saving money and that could mean you’re financially able to jet overseas for that dream holiday or put a deposit down on your own home. Use the Mozobudget calculator as that will help you estimate how much you can afford to to make in credit card repayments each month.

Credit card repayment insurance

It’s up to you if you want to take out credit card repayment insurance, it’s by no means compulsary. Credit card repayment insurance will protect you if something unforeseen happens and you can no longer make your payments. Credit card repayment insurance will cover you when:

  • You lose your job
  • Are unfit to work e.g illness, injury
  • If you die

Different providers have different rates for credit card repayment insurance. Premiums can range from 50cents for every $100 owing on your card. If you’re considering taking out insurance on a new or existing credit card, talk to your bank or financial institution about their costs.

Make sure you plug some numbers into our credit card debt payments calculator to see when you’ll be debt free.

Ways to pay your credit card bill

Thanks to the tech savvy world we live in, there are plenty of efficient and quick methods to pay your credit card bill each month. Here are your options:

  • Set up an automatic payment plan: This is easy to do and ensures you pay your bill on time, avoiding any late payment penalties. The payment is made automatically from any Australian bank savings or transaction account. You can set it up to pay the full closing balance, the minimum payment as shown on your statement or a percentage of the closing balance which some banks allow.
  • BPAY: This is a new added convenient way of paying your credit card bill. BPAY is a free transaction service and can be accessed on your financial institutions online site or via telephone banking. You can find the BPAY biller code and reference number at the bottom or on the back of your credit card statement.
  • In person: It may seem old school but you can always pop into your nearest bank branch and pay your credit card bill in person. You can pay in cash, by card or cheque.
  • Over the phone: Telephone banking can be done 24hours 7days a week.
  • Mail: Who doesn’t like receiving money in the post! You can send a cheque but remember it does take several days to be cleared.

What to do if you are having trouble repaying debt

If you are faced with financial hardship and are struggling to repay your credit card debt, get in touch with your credit provider ASAP. A lot of financial institutions have specialists on board that are there to listen to your financial situation and provide personal assistance. It’s important to act quickly to avoiding spiralling into more debt with late penalties. Here are some more tips on what to do if you can’t pay your credit card debts.

5 top tips to manage your debt

1# Pay off your credit card balance in full each month

2# Don’t overspend. Stick to a budget and use your credit card only when necessary

3# Set up an automatic payment plan

4# If you have more than one credit card consider a balance transfer card

5# Reduce your credit limit if you’re constantly going over your budget

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