As we reach the end of the biggest holiday booking month of the year, new findings released by credit card comparison website TotallyMoney.com, in partnership with the Centre for Retail Research, reveal that consumers are set to add a whopping £9 billion to their credit card bills during 2014 on holiday bookings alone – 8% higher than 2013.
However, as more than one in ten (11%) consumers opt to make the minimum repayment on their credit card every month, a holiday for a family of four to Tenerife could take over ten years to repay and increase the cost of the holiday from £1,232 to £2,151. This is a total interest bill of £919 as they could still be paying for the trip in 2024.
Minimum repayments still going down
Unlike mortgages and loans, credit card holders can choose how much they want to repay. The only restriction is the prescribed minimum repayment, the lowest amount the credit card holder must repay each month to avoid penalty charges. From April 2011, providers were forced to set the monthly repayment on all credit card products to at least 1% of the outstanding balance plus interest.
However, TotallyMoney.com’s market analysis reveals that the average minimum repayment on credit cards has fallen from 2.15% of the balance in 2010 to just 1.53% today, a small reduction which costs consumers £1.4 billion a year. Overall, 68% of providers charged consumers more than 1% of the outstanding credit card balance in 2010, today this has fallen to just 34%.
For consumers, this means that booking a holiday to New York which costs £3,561 would take over 16 years to repay and £3,048 in interest if the minimum repayments were made. However, booking the same holiday in 2010 would take 12 and a half years to repay and £2,041 in interest, £1,007 less.
It doesn’t have to be that way
Consumers don’t have to let their annual holiday leave them with a 16 year debt sentence. If you are planning to pay the bill off in full, by using a best buy cash back credit card, such as the American Express Platinum to pay for a trip of a lifetime to Cape Town, travellers could earn 5% on the first £2,500 spent in the first three months and 1.25% thereafter.
For those who cannot pay the bill off in full there are some great 0% deals for purchases including Tesco and Santander’s 18 month cards which are impossible to beat at the moment – the next best offers are at 15 months 0%.
In the Absence of ATOL protection, section 75 could save the day
Booking a holiday with a credit card offers consumers extra protection, particularly if the travel company goes into liquidation before the holiday is taken. Not all holidays are covered by ATOL protection, particularly when you book flights and accommodation separately.
Section 75 of the consumer credit act is in place to protect people if there is a problem with the holiday or the company goes bust in which case the credit card issuer will accept liability and make a refund. This covers purchases for between £100 and £30,000.