Learn / Part 3 · Inside the Financial System
Credit Cards, Overdrafts and Revolving Debt
Why are cards and overdrafts so easy to start and hard to finish?
In brief
Revolving credit is convenient and expensive. Minimum payments are designed to keep the balance alive, and interest builds quickly on what remains.
Key ideas
The minimum is a trap
A minimum that shrinks with the balance can keep debt alive for decades.
Make an insight card →Convenience has a price
Rewards and grace periods are paid for by those who carry balances.
Make an insight card →Pay in full or fix the payment
The simplest rule: clear the balance each month, or fix a payment that does not fall.
Make an insight card →Try it
The minimum-payment trap
Minimum payments are designed to keep the account alive. Compare paying only the minimum with paying a fixed amount every month.
Open the full page: formula, variables, worked example and cautions →
Red flag
A “skip a payment” offer, or a limit increase you did not request.
Ask before you sign
- How is the minimum calculated?
- What interest applies from the purchase date, and what fees apply?
Do this week
Switch your card payments to a fixed amount above the minimum.
Try it · 10–45 minutes
Find the rate, minimum rule and fees on your own card.
Connected ideas
Where else this shows up
Pause and reflect
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Words worth knowing
- Revolving credit
- Credit you can use, repay and use again up to a limit, such as a card or overdraft.
- Credit utilisation
- The share of your available credit limit that you are using. High utilisation can signal stress to lenders.
- Overdraft
- Borrowing by spending more than your account holds. Usually expensive and sometimes automatic.
- APR (annual percentage rate)
- A yearly cost-of-borrowing figure. Definitions vary by country; in some places it includes fees, in others only interest. Always ask what it includes.
Companion notes written for this website, based on the topics of Chapter 12. They explain ideas and do not reproduce the book. General information, not personal advice.