Warning over minimum payment card debt

Consumers should be aware of the risks of running up more credit card debt by only paying the minimum on their accounts, it has been stated.

Consumers should be aware of the risks of running up more credit card debt by only paying the minimum on their accounts, it has been stated.

Thinkmoney.com advised: “You should always try to repay a good proportion of your debt each month, because making only the minimum repayments could mean your debt takes a very long time to pay off.”

It gave the comparison of two scenarios involving a £1,000 balance on a card with an 18 per cent interest rate and a minimum monthly payment of £5 or three per cent of the balance.

The site explained this debt could be paid off at equal amounts of £92 over 12 months with the total interest payments being £93.

By comparison, it noted, should only the minimum be paid each month it would cost almost £1,900 and take 14 years to clear the debt.

Such a situation could be a particularly severe one for those with larger balances and more than one card, where the amounts of extra interest could be a lot more.

The issue of credit card debt is one many consumers have had to grapple with in recent times as lavish spending has led to unsustainable borrowing and the need to tighten belts as the economy has struggled.

Recent British Bankers Association data indicated many people have heeded the lessons of the past, with overall balances falling over the past couple of years, standing at £60,429 million in October this year compared with £63,641 million 12 months earlier.

Director of statistics David Dooks commented that overall use of cards has risen recently but “consumers regularly repay more than they spend”.

By Joe White

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