Your credit card could mean 30 years of debt

According to reports from a popular price comparison website millions of consumers with credit cards in the UK could be facing around thirty years of being in debt, simply because they are only making the minimum repayment on their card.

The research was carried out by uswitch.com and showed that million of UK consumers are making only the minimum repayment on their credit card, which could lead to years of debt and huge sums of interest.

The average minimum repayment set be credit card companies is around 2.6% of the outstanding balance, and for a number of companies this level is set even lower. This means that someone with a debt of around £1800 on their credit card could be making repayments for 29 years if they stick to a minimum repayment of just 2% of the balance each month. They would also pay nearly £3000 in interest on the debt.

Uswitch wants credit card companies to raise their minimum repayment levels so that consumers will be able to reduce the amount that they repay in interest and reduce the amount of time that they are in debt simply by paying a little extra each month.

One officials from the price comparison site stated: "In an environment of rising interest rates where personal debt in the UK has reached a staggering £1,325 billion, of which credit card debt accounts for £54 billion, consumers could now finish repaying their mortgage before their credit card, despite the huge disparity in sums borrowed. Despite the introduction of 'health warnings' on credit card statements, the implications of making the minimum repayment each month are still not clear enough to consumers."

He added: "There is little justification for setting minimum repayments at just 2 per cent and we believe that it is time that the industry agreed a standard minimum repayment amount of at least 3 per cent on all credit cards."

Tom Smith
24th July 2007