Why paying only the credit card minimum keeps you in debt for years

Minimum payments on a credit card look harmless. The statement tells you the smallest amount you have to pay this month, and as long as you hit that figure you avoid late fees and stay within the rules.

But money guidance services and regulators have been warning for years that sticking to the minimum is one of the easiest ways to stay in debt for a very long time.

One national guidance site gives a simple example: if you owed £2,000 on a typical card at around 22% interest and only ever paid the minimum of 2.5% of the balance, it could take around 14 years to clear the debt. Another credit information service shows that a balance of £1,500 at a similar rate could take more than 25 years to repay if you stick to the minimum that shrinks as you go, but under 5 years if you pay a fixed amount each month.

This guide explains why that happens, what “persistent debt” means, what lenders are now required to do, and how you can escape the minimum payment trap.

How card minimum payments are actually worked out

Most card providers set your minimum payment each month using a formula such as:

• a small percentage of your balance, or
• that percentage or a fixed pound amount, whichever is higher, or
• your interest and fees for the month plus a bit extra towards the balance.

Money and credit information sites explain that a typical minimum might be around 2%–3% of the balance, sometimes with a floor such as £5 or £25. As your balance falls, that percentage is applied to a smaller number, so the minimum due gets lower and lower over time.

That shrinking minimum is the heart of the trap:

• In the early months you pay a reasonable amount.
• As the balance drops, the minimum falls and more of what you pay goes towards interest rather than actually reducing the debt.
• The lower the payment, the more months you stay in debt and the more interest you pay overall.

One comparison site explains that if you only ever pay the minimum, “it’ll take longer to fully clear your debt” and you will pay far more interest than if you paid even a modest fixed amount above the minimum.

Why minimum payments can keep you in debt for so long

There are two main reasons minimums can keep you stuck:

1. They fall as your balance falls
   With percentage–based minimums, you might start off paying, say, £60 a month, but a few years later the minimum could have dropped to £25 or £15. That may feel easier on your pocket, but it also means you are barely chipping away at the balance.

2. Most of what you pay can go on interest
   At typical card interest rates in this country, it is common for a large slice of a minimum payment to go straight on interest and charges rather than reducing the underlying debt. The higher the interest rate and the lower your payment, the worse this gets.

A guidance page from a major advice charity warns that paying only the minimum “increases the amount you have to pay overall” and that if you can only ever afford the minimum, it may be a sign of wider money problems.

What “persistent debt” actually means

Because so many people were stuck for years paying mostly interest, the financial regulator introduced a formal concept called persistent credit card debt.

In simple terms, you are in persistent debt on a card if over a period of 18 months you have paid more in interest, fees and charges than you have repaid of the amount you actually borrowed.

Debt charities and banks explain it like this:

• look back over 18 months of statements
• add up all the interest, fees and charges you have paid
• add up all the money that has actually gone towards reducing the balance
• if the first figure is bigger than the second, you are in persistent debt.

The regulator’s rules require card firms to monitor accounts and identify customers in this position, then step in to help them pay down the balance faster.

The 18, 27 and 36 month rules for persistent debt

To tackle long–running card debt, rules were brought in that force lenders to engage with people who only make minimum or near–minimum payments for long periods.

Summarising the regulator’s policy statements and later reminders:

• After 18 months of persistent debt, your card provider must contact you to explain that you are in persistent debt and that carrying on like this will cost you a lot in interest. They should encourage you to increase payments if you can.

• After 27 months, if you are still likely to be in persistent debt at 36 months, the provider must send another reminder and update you on your progress.

• At 36 months, if you have been in persistent debt for that long, the provider must offer ways for you to repay the balance within a reasonable time, usually three to four years. This might involve a payment plan, moving you to a cheaper product, or reducing or waiving interest and charges. In some cases, they may also warn that your card could be suspended if you do not take action.

These duties are set out in the regulator’s credit card market study, policy statements and follow–up guidance, and are echoed in factsheets from StepChange and other debt advice organisations.

Why this is a live problem today

This is not just theory. Recent articles drawing on data from the regulator suggest that more than a million and a half people only pay the minimum on their cards, and that many have been doing so for years.

When day–to–day costs are high, it is understandable that people go for the smallest payment they can. But the effect is that you:

• stay in debt for much longer
• pay far more in interest overall
• are more likely to end up in persistent debt and receive warning letters from your card provider.

Debt advisers are now regularly seeing clients whose card balances have barely moved despite years of payments, because almost everything has gone on interest.

Does paying only the minimum hurt your credit score?

Minimum payments themselves are not automatically bad for your credit record. If you always pay at least the contractual minimum on time, your credit file will normally show that the account is up to date.

However, paying only the minimum can harm you indirectly:

• High, long–lasting balances mean your card is close to its limit for years. Credit reference agencies warn that using a high proportion of your limit for a long time can make you look riskier to new lenders.

• If you are close to your limit, a small extra purchase or fee can push you over the limit, triggering extra charges and a negative marker on your file.

• If you ever miss even the minimum, your provider can add charges and report late or missed payments to credit reference agencies. Guidance from advice charities is clear that these markers can seriously affect your ability to get credit later.

In short, paying the minimum on time is better than missing payments, but it is not a long–term strategy for healthy credit.

What to do if you are already in persistent debt

If you have had a letter about persistent debt or suspect you might be in it, there are practical steps you can take.

1. Stop using the card if you can

Debt advice organisations make the same suggestion: if you keep spending on the card while trying to escape persistent debt, you are running up the down escalator. Stopping new spending means more of your payment can go towards clearing what you already owe.

2. Work out what you can realistically afford

Use a simple budget tool to see how much spare money you have after paying for essentials such as rent or mortgage, council tax, energy, food and travel.

Money guidance sites and Citizens Advice both have free budgeting tools and templates. Once you know what you can afford, you can decide how much to pay your card and whether you need to ask the lender for a new arrangement.

3. Contact your card provider

Persistent debt rules mean your provider should help you if you have been paying mostly interest and charges for a long time. Depending on your situation, they may:

• agree a fixed repayment plan to clear the balance over three to four years
• reduce or suspend interest and fees so that more of your payment goes on the balance
• suggest moving the balance to a product with a lower interest rate
• in some cases, restrict or suspend spending on the card so that the debt can come down.

It is much better to contact them proactively than to wait until they suspend the card or pass the debt to collectors.

4. Get free, independent debt advice

If your card is only one of several debts, or if you cannot see how to increase payments without missing essential bills, speak to a free debt advice charity.

Organisations such as Citizens Advice, StepChange and National Debtline can:

• help you prioritise between credit cards and other debts
• negotiate affordable payment plans
• explore options like a debt management plan or, in more serious cases, formal insolvency solutions.

They also understand the persistent debt rules and can challenge lenders who do not seem to be following them.

How to avoid the minimum payment trap in future

If you are not in trouble now but want to avoid problems later, a few simple habits can make a big difference.

Always aim to pay more than the minimum

Even a small fixed amount on top of the minimum can dramatically cut the time it takes to clear your balance and the interest you pay.

For example, one credit reference agency shows that on a sample balance, paying only the minimum would mean more than 25 years of payments and thousands in interest, whereas paying the same amount each month (rather than letting it shrink with the minimum) clears the debt in under 5 years and saves thousands.

You do not need to copy those exact numbers, but the principle is powerful:

• set a realistic fixed payment that is higher than the minimum
• keep paying that amount even as the minimum shown on your statement falls.

Treat promotional rates with caution

Interest–free or low–rate offers can be helpful if you clear the balance within the deal period. But if you only pay the minimum on a promotional balance and do not clear it in time, the rate may jump sharply, and you are back in the minimum payment trap at a higher rate.

Before taking a promotional deal, work out how much you need to pay each month to clear it within the offer period, and decide whether that really fits your budget.

Use tools and alerts

Many card apps now let you:

• set your own fixed payment that is higher than the minimum
• set up alerts for when a payment date is coming up
• see how long it will take to clear the balance at different payment levels.

Using these tools, or online calculators from money guidance sites, can take some of the guesswork out of planning your payments.

When it is right to pay less than the minimum

There are times when you simply cannot afford even the contractual minimum without missing essential bills.

Citizens Advice and other charities explain that in this situation you may need to:

• reduce all non–priority debt payments (including cards) to what you can realistically afford
• accept that your credit file will be affected
• focus on keeping up with priority bills like housing, council tax and energy to avoid more serious consequences.

If you do this as part of a formal plan agreed with your creditors or through a debt solution, it can still be the right choice overall. What you should not do is quietly miss minimum payments without talking to anyone. That tends to lead to charges, collection action and a lot of stress.

Key points to take away

• Minimum payments keep you within your card agreement, but they are designed so that debts can last for many years.
• Persistent debt is when, over 18 months, you have paid more in interest, fees and charges than you have repaid of what you borrowed.
• Card providers are now required to step in at 18, 27 and 36 months of persistent debt and offer ways to help you clear what you owe in a reasonable time.
• Paying only the minimum is better than missing payments, but it can still hurt you by keeping balances high, increasing interest costs and making you more vulnerable to shocks.
• If you can, set a fixed payment that is higher than the minimum and stick to it – this alone can cut years off the life of a debt.
• If you are already stuck in persistent debt, contact your card provider and a free debt advice charity to explore your options.

Minimum payments are meant as a backstop, not a long–term plan. Once you understand how they work, you can start using your card on your own terms instead of letting the minimum quietly run your finances for you.