Only a fifth of Brits are able to calculate how long it will take to clear a credit card balance, according to recent research conducted by the Debt A…
Only a fifth of Brits are able to calculate how long it will take to clear a credit card balance, according to recent research conducted by the Debt Advisory Centre.
If you had a £1,000 balance on a typical credit card with an 18.9 per cent APR, and paid a minimum monthly payment of 2.5 per cent or £15, how long would it take you to pay off?
(a) Five years, (b) Nine years, (c) 19 years, (d) 29 years, (e) I don’t know
This question was posed to 1,300 people; however, just 20 per cent were able to give the correct answer.
Almost a quarter of respondents believed that it would take between 19 and 29 years to repay the balance in full. A fifth were rooted at the other end of the spectrum, thinking that it would take just five years to clear the balance. However, 'I don’t know' received the largest number of responses, with 38 per cent.
Just a fifth of people chose the correct answer – that it would take nine years to repay a £1,000 balance by making minimum monthly repayments.
A quarter of people who use a credit card admit that they don't clear their balance every month. With this in mind, it is concerning that so many consumers don’t understand how to calculate how much they are paying back, or simply haven’t used one of the online tools to check this.
In fact, ten per cent of credit card users say they only ever make minimum payments.
The research showed that more men are able to calculate repayment periods than women. Over 20 per cent of men chose the correct answer of nine years, compared to just under 18 per cent of women.
In addition, women are more likely to feel stressed about carrying a balance on their credit card. 31 per cent admit that it makes them anxious and affects their sleep, while just 22 per cent of men felt this way.
With so many adults in the UK facing rising debt following a rise in spending over the Christmas period, it's important that they seek to better manage credit card debt in 2016.
Online tools are available to show how long it will take to pay off existing credit card balances.
In order to minimise the amount of interest added to the debt and avoid paying off the balance for years to come, credit card users are advised to increase monthly repayments.
Those who have a good credit history will also see benefit from switching balances to a zero per cent interest rate credit card. This way, the debt can be paid off faster, as interest won't need to be paid.