When it comes to credit card debt, much has been written about the perils of simply paying off the minimum each month. But do people really understand the impact of doing so? In May 2015, we surveyed 1000 credit card holders to find out.
In our study, 11% of UK adults admitted that they just make the minimum payment on their credit cards and this option was definitely more popular amongst younger people: 29% of 18-24 year olds and 21% of 25-34 year olds said they only make the minimum payment each month.
We also uncovered a worrying trend: it seems that there’s significant confusion around what making the minimum payment actually means. When respondents who said they make the minimum payment each month were asked why they chose that option, 33% said they did so to avoid paying interest, and 18% said they thought it was the cheapest way to clear their debts.
In reality, this isn’t the case. Making the minimum payment does not mean that you avoid paying interest, and it definitely isn’t the cheapest way to clear your debt. In fact, the opposite is true:
Making the minimum payment means you’ll pay more in interest, and it is the slowest and most expensive way to clear your debt.
But back to our original question: do people understand the impact of simply paying the minimum off their credit cards each month? Our survey revealed that only 1% of UK adults were able to answer correctly when asked to determine how long it would take to repay £2,000 of credit card debt.
Want to see how you fare versus the great British public? Click here to find out.