Short answer: If you pay your full balance by the due date, usually very little. Once you carry a balance, interest is charged daily — Moneysmart puts the average card rate at over 18% — and you typically lose your interest-free days on new purchases too. On a hypothetical $3,000 balance at 20%, paying only the minimum could take around 18 years. Paying a fixed amount each month changes that dramatically.
Card interest is quoted as an annual rate but charged using a daily rate. Commonwealth Bank describes its method in three steps, and it is a useful model for how cards generally work:
Purchases, cash advances and balance transfers can each be calculated separately, at their own rates. Your card's key facts sheet or terms set out the exact method and rates for your card.
"Up to 55 days interest-free" sounds generous, but there are conditions. According to Moneysmart:
Commonwealth Bank explains what happens if you pay only the minimum, make a partial payment, or pay late: interest is charged on the unpaid balance from the day after the due date, and new purchases start attracting interest from the day they are made. Cash advances — including ATM withdrawals — have no interest-free period at all.
This is the hidden cost of carrying a balance. It isn't just the interest on what you owe; it's that everything new you buy starts costing interest straight away too.
These numbers are hypothetical, chosen to show how the maths works. They are not based on any particular card. Assume a $3,000 balance at 20% p.a., no new spending, and no fees.
Now suppose the minimum repayment is 2.5% of the balance or $20, whichever is greater — Moneysmart says minimums are typically 2 or 2.5%, or about $20. In the first month the minimum is $75, but about $49 of that goes on interest, so the balance only falls by about $26. As the balance shrinks, so does the minimum, which is why it takes so long:
| Repayment approach | Time to clear $3,000 | Total interest |
|---|---|---|
| Minimum only (2.5% or $20) | About 18 years | About $4,720 |
| Minimum only (2% or $20) | About 34 years | About $10,250 |
| Fixed $150 a month | 25 months | About $680 |
Figures are estimates calculated month by month at a daily rate of 20% ÷ 365 over an average month of 365 ÷ 12 days, rounded. Real results vary with your card's rate, fees, statement dates and spending. Moneysmart's credit card calculator lets you run your own numbers.
Your statement already does part of this maths for you. Look for the minimum repayment warning. Bendigo Bank describes it as showing "how long it would take to pay off your current closing balance if you only paid the minimum amount each month". Commonwealth Bank's version is a table comparing paying only the minimum with the saving from paying more over a two-year period.
It is worth reading every month. If the time to pay it off is measured in decades, that is a signal the minimum is mostly paying interest.
A balance transfer moves your debt to a new card at a low or zero promotional rate. It can help, but Moneysmart flags several traps:
Moneysmart's suggestions: repay the balance before the offer ends, limit spending on the new card, cancel your old card, and set a reminder for when the promotional period ends.
If you have more than one card, there are two common ways to decide which to pay down first. Moneysmart describes both:
Either way, the basics are the same: keep making at least the minimum on every card, put every extra dollar towards one target, and consider asking your provider to reduce your credit limit or cancelling each card as you pay it off.
If repayments are becoming hard to manage, you don't have to work it out alone.
The example above is hypothetical; your real cost depends on your balance, rate and repayment habits. MyPelican's Credit Card Insights show how much your credit card debt is costing you in interest each year, and the fastest path to paying it off. Learn more about MyPelican.
Most cards use a daily rate. Commonwealth Bank, for example, averages the balance you owed each day over the statement period, multiplies it by the daily rate (the annual rate divided by 365), then multiplies by the number of days in the period. Purchases, cash advances and balance transfers can each be calculated separately at their own rate.
Moneysmart says interest-free days only apply if you pay the full balance by the due date. If you pay only the minimum, make a partial payment or pay late, banks such as Commonwealth Bank charge interest on the unpaid balance from the day after the due date, and new purchases attract interest from the day they are made. Cash advances usually have no interest-free period.
Promotional balance transfer rates usually last 6 to 24 months. Moneysmart warns that if the balance is not paid off before the promotional period ends, you will be charged a higher interest rate on what is left, and missing a required repayment during the offer can mean losing the low rate early.
The National Debt Helpline offers free, confidential and independent financial counselling on 1800 007 007, weekdays 9:30am to 4:30pm. You can also contact your card provider's hardship team if you are struggling to make repayments.
This guide is general information about how credit card interest works, not personal financial or legal advice. It does not recommend any card or product — check your own card's terms and key facts sheet. The worked example is hypothetical. Moneysmart and the National Debt Helpline are the authoritative sources. Details were current at the time of writing.
Want more plain-English money guides in your Google results?