Pay more than the minimum on your credit card: Here’s why

There’s no legal requirement to pay more than the minimum amount due on your credit card every month, but it makes good money sense to do so.

Two experts explain why you should boost your credit card payments, if possible.

Tip: Debt consolidation can help you pay off your debts faster.  

What are the benefits of a credit card?

Credit cards are an important transactional product that can boost financial mobility, says Tshipi Alexander, executive: consumer issuing at Absa Everyday Banking.

“They're especially useful for short-term cash-flow needs between paydays, or funding large or unexpected purchases or expenses,” he notes.

Tumelo Ramugondo, head: credit card at Standard Bank, notes that, because you don’t have to pay interest on purchases for 55 days, you can transfer a portion of your salary into your credit card and use it as a transactional account.

“If your salary is R20,000 a month and you put R10,000 into your credit card, you can spend as you go while reducing the balance owing without paying interest,” he says.

Credit cards can also be a “gateway” to discounts. For example, an Absa credit card can offer up to 30% cashback on groceries, along with travel benefits, and other rewards. 

“You can use the benefits that accrue when you transact – for example, you can get three times more [Standard Bank] UCount rewards on your credit card than your debit card,” says Ramugondo.

How can you use your credit card responsibly?

Not everyone prioritises paying off debt before making other payments, especially if – as with a credit card – there’s an option to pay off an outstanding balance over time, Ramugondo points out.

However, he cautions, paying at least the minimum balance on your credit card is important.

“[Having a credit card] satisfies a cash flow need – but we do encourage our customers to pay more [than the minimum] to avoid paying maximum interest. We don’t want them to be perpetually in debt,” Ramugondo explains.

Alexander agrees. “When you pay more than the minimum payment required, you ensure continued access to credit card benefits,” he explains.

If you have your salary paid into your credit card, that will settle your balance in full, he says. “This results in a high positive balance, allowing you to earn interest.”

Paying even nominal amounts, such as an extra R50 or R100, will make a difference,  and reduce the interest owing, Alexander adds.

“This lowers your monthly repayment costs and allows you to settle the debt faster.”

Ramugondo suggests that you ask your bank if you have the flexibility to pay anything from the minimum to the total amount owing at any given time. This allows you to control your cash flow – and enhances your financial standing.

What happens if you encounter financial difficulties?

If you’re struggling financially, you should aim to pay the minimum fee at the very least to maintain your credit score.

“Contact your bank if you experience financial challenges as there are solutions available to support customers through difficult periods,” Alexander counsels.

“Some customers make regular payments above their monthly premiums to create a buffer, [allowing them] to pay the minimum amount owing if they encounter a challenge.”

Absa advises customers to contain spending to an amount below their credit limit, which also creates a buffer for emergencies, Alexander says.

“When making purchases, you can select a longer repayment period, using the budget facility (three to 60 months) to keep repayments affordable and avoid exceeding the limit,” he recommends.

What other factors should you consider?

Ramugondo advises that you consider whether your finances are in a net positive or negative position, and how this may affect your credit card payments. 

“If you’re paying 15% interest on credit card debt and have an investment that’s returning only 7%, your priority should be to get out of debt and improve your financial position,” he recommends.

“Consider the size of the debt and interest paid against your savings and any interest you can earn. You should understand how much interest and capital you pay to the bank,” he advises.

“This allows you to make better financial decisions.”

Tip: A budget calculator can help you determine how much extra you could pay towards your credit card debt each month.