D4 - The 3% Credit Card Minimum Payment Trap: Why You Stay in Debt (Unless You Break Free)

The banks aren't going to like us very much for exposing this hidden "trap". But so what! We're here not only to educate ourselves but also help you too wherever we can.

Are you only paying the "minimum amount due" shown on your credit card statement and think that everything is going to be fine because you can afford to make that minimum payment? Think again!!

Money magic trick

Here’s the dirty secret the banks don’t advertise: That "minimum amount" is usually just 3 to 5% of your outstanding balance - designed to keep you in debt for as long as possible. In fact, our Standard Bank credit card's’ minimum monthly payment is exactly that – 3% of the outstanding balance.

What the Banks Don't Tell You

In South Africa, almost all major banks (FNB, Standard Bank, Nedbank, ABSA) follow this rule:

✔️ Minimum monthly payment = 3% to 5% of your outstanding balance - OR a fixed rand amount (like R100), whichever is higher.

✔️ But here’s the catch: They never print "3%" on your statement. (at least, not that I've seen - please comment at the bottom of this post if you have seen otherwise)

Instead, they show only the rand value (like “Minimum Due: R1 886.06”) - making you forget that this is really a small fraction of your total debt.

✔️ And while you keep paying just this “safe-looking” number, they quietly charge you about 18% – 22% annual interest… month after month after month.

Real Example from My Standard Bank Credit Card:

Here's a screenshot of part of last month's credit card statement:

snippet of our standard bank credit card statement

Guess what? R62 868.78 ÷ R1 886.06 = 3% 

If we only paid this “minimum” amount every month - our debt could stretch out for years, costing thousands of ZARs (Rands) in wasted interest.

Let me explain what is happening here:

• We're paying 3% of the outstanding balance - only. Not 3% plus the interest , plus the credit policy. So the amount going towards the actual debt is relatively small.

• Then, at the end of the month before the next 3% payment is deducted , the bank adds the interest and the credit policy (insurance - R4.93 / R1000 owed, in our case). The combination of all these amounts is quite close to the amount you just paid.

• This cycle repeats itself month after month after month.

Let us also explain it with an example. And let's say we aren't using our card for purchases anymore, and we only pay the minimum amount (3% of the outstanding balance) every month:

A picture illustrating what happens when you only pay the minimum monthly payment on your credit card

What you can see from the above is that after 12 months (1 year) we would have made payments totaling R21 211, but our debt has only reduced by R8 400.

Paying a Fixed Monthly Amount Makes All the Difference

Now let's see what happens if we pay the minimum amount from the first month (R1 886) and we keep paying that same amount every month. In other words we don't pay what the bank tells us to pay, we pay a little more than what they want us to pay after the first month - that is the same amount of R1 866 every single month for the whole year.

A picture illustrating what happens when you pay a fixed monthly payment amount on your credit card

In the above example, we would have paid and extra R1 422 (R22 633 - R21 211) over the year compared to the previous example, but have reduced the debt by an extra R 1 544. This can be so much more effective if we just increase that fixed payment of R1 886 to let's say R2 000 every month - more on that later.

😱 The Really Scary Part

I ran the numbers for the examples above over 10 years, and guess what?

Paying Only the Minimum 3% Every Month :

• After 10 years, we would have paid a whopping R120,922 towards our R62,869 credit card debt, but

• we would still be owing R14 982...........OUCH!!

vs. Paying a Fixed Amount Every Month:

If we pay the initial 3% minimum (R 1 886) and keep paying that same amount - month after month, after month, then:

• our debt would be paid off after 52 months

• we've paid a total of R98 075

You can download the spreadsheet called MINIMUM VS. FIXED PAYMENT here. which illustrates this example.

🚀 What Banks Want vs. What You Should Do:

What the Bank Wants You To Do	What You Should Do
Pay the 3% "minimum due" forever	Pay a flat, consistent amount every month (even if your balance shrinks)
Stay in debt 5+ years	Be debt-free in half the time
Pay thousands in interest	Save thousands and invest instead

Conclusion

What is clear to us now - and should be to you too - is that only paying the minimum amount (3 to 5%) every month is a really bad idea. What we should be doing is finding that number we know we can afford to pay every month - even if it is only 3% of the outstanding debt from when we start applying this strategy, then stick to paying at least that fixed amount until the debt is gone.

What's Next

The next logical step for us now would be to list our monthly income and all our monthly expenses and see what our surplus is, and then deciding what portion of that surplus we can comfortably pay towards our debt every month - over and above the interest portion of our debt (the interest expense). First, I think we should work out what exactly that interest expense is because, after all, it forms part of our monthly expenses. Check out our following post called The Shocking Cost of Our Bad Debt.

Until then, take (financial) care!

FAQ Section:

What is the 3% minimum payment trap?

It’s when credit card companies only require a 3% monthly minimum payment. This keeps your balance going for years while you pay mostly interest - not the actual debt.

How long does it take to pay off R10,000 if I only pay the 3% minimum?

Depending on the interest rate, it could take over 10 years - and you may pay back 2 to 3 times more than the original amount.

How can I avoid the credit card trap?

Always pay more than the minimum. Focus on reducing your balance quickly and avoid taking on new debt.

Is this trap common in South Africa?

Yes - many South Africans fall into it without realizing. Credit card minimums are designed to benefit the bank, not the borrower.

What’s the best way to pay off credit card debt fast?

Use the avalanche method (paying highest-interest first) or snowball method (smallest debt first) and cut unnecessary expenses. We believe the avalanche method to be more effective for us - we'll explain in a later post.

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