I never prefer to read articles having heavy terms and their explanation. Since credit cards are common among all. So this information is available for people in interest of keeping knowledge about credit card payment.

I’ll update you soon with some interactive ways for credit card selection.

Minimum payment

Minimum payment is a required by the bank sum, that is determinate by percentage of the borrowed amounts from balance of the credit card and stands at usually 2-5%. As standard do banks require between 2 to 5% of the outstanding balance to be paid on the monthly basis along with interest or it can also be a fixed amount of dollar for a low balance, which as standard is $15.00 for US and Canada and about £5.00 on most credit cards in UK, usually depends on whichever is greater.

Ways of calculating a minimum payment is pretty simple is to multiply the balance on the minimum percentage (2-5%) required paying, which is greater than the sum of interest to cover partial principal payment. The calculator above has an option to define a minimum only or a minimum plus interest ways to pay.

Fixed Payments on Low Balance

Fixed Payments on Low Balance is paid when the minimum payment, which usually between 2 and 5% of the balance are lower than that fixed payment amount, which is $15.00 for US and Canada or £5.00 for UK on most Credit Cards. In other words the minimum amount required to be paid towards principal is between 2 to 5% of the balance of the credit card. The fixed amount will be paid only when the minimum amount, calculated as percentage of the balance will become equal to or lower than that fixed payment amount.

Principal Payment Distribution.

This is defined as distribution of the principal payment on two lines of credit described as balance on purchases and cash balance of the credit card. Because of the difference in interests for this balances, most banks usually leave cash balance payments right until the very end of clearance of the balance on purchases or may only allocate a very little portion of principal towards those cash balance repayments. You can change this by changing the value of the cell named “Principal Payment Distribution” by changing the percentage of allocation that it usually varies between 0% and 15% depending on your credit cards agreement.

Fixed amount and Additional Payment.

Fixed amount can be any amount that has been decided to pay, but it must be equal or above than the first month payment amount. Making fixed monthly payments will make a significant difference on the number of payments and total interest paid, this will let you pay your credit card balance much sooner and for sure save some interest too. Do not get confused by definition of a Fixed Payment and Fixed Payment on low balance, since this two are completely different payments.

Additional payments are usually the payments that are made occasionally. Depending on the sums paid this can also be a big difference to the paid interest amounts as well as reduction of the number of payments. Both methods can be used with our calculator.

Payment Protection Insurance Payments.

Payment Protection Insurance, also known as PPI is a product that is being sold to you by your bank when you take a loan or credit card. Depending on the agreement PPI will either be deducted from your credit card balance or can be added to your monthly payment. There is a big difference in between, if your PPI premium is deducted from your credit card balance, which is as usual considered as a standard purchase with your credit card as if you were shopping with it, which means that you will also be charged an interest for this and if you are making only a minimum payments you will not be able to cover your credit card balance at all. If you PPI is added to the monthly payment then your monthly total payment will be higher, but at least you can avoid spending your credit card balance and pay extra in interest. PPI offered by any bank is almost always lot higher than if purchased identical product from an independent insurance broker, just remember to read a small print on your credit card agreement to make a right decision before purchasing.

Amit Gupta

Hey! this is Amit Gupta (amty). By profession, I am a Software Eng. And teaching is my passion. Sometimes I am a teacher, as you can see many technical tutorials on my site, sometimes I am a poet, And sometime just a friend of friends...