Those using credit cards to pay for expensive items put themselves at risk of running up severe debts if they do not clear the balance quickly, an exp…
Those using credit cards to pay for expensive items put themselves at risk of running up severe debts if they do not clear the balance quickly, an expert has said.
Justin Modray of the Candid Money website noted this was the case following the publication of research by foreign exchange firm Travelex this week, showing 26 per cent of Britons will pay for a foreign holiday on plastic this year at an average cost of £400 each.
He noted that while there is one advantage to this – payments of over £100 are covered by the 1974 Consumer Credit Act – people who only pay back the debt gradually could pay a high price.
“For example, if you pay for a £500 holiday using an 18 per cent annual percentage rate credit card and then simply make minimum monthly payments thereafter, it could take over nine years to clear the debt and cost you £340 in interest,” Mr Modray explained.
Those who pile up credit card debt could end up needing an individual voluntary arrangement, where creditors agree to take a smaller amount repaid over a period of up to five years, at the end of which all remaining debt is written off.
A study by Moneysupermarklet.com published this week revealed failure to pay off credit card balances before the end of the interest-free period adds £2.3 billion to the UK consumer debt mountain every year.
It found the average balance on a credit card takes ten months to be paid off fully.
By Amy White