Closing the perception gap
By Oliver WheatonJan 28th 2016
As part of our ongoing efforts to understand consumer needs and make the world of credit a fairer place, we conducted a survey that found only one per cent of the population knew how long it would take to pay off £2,000 in credit card debt by making the minimum repayments each month. In order to visualise this for people we created the Minimum Repayment Trap calculator, which not only offers users a chance to guess at how long it would take to pay off the debt, but also gives the massive amount of repayment time (nearly 35 years) some scale by utilising a large scrolling graphic. Are you in the 1%?
By highlighting the fact that only one per cent of the population was aware of how long it would take to repay this amount, we hoped to show how many people could potentially save money if they were more aware of how credit card repayment works. Obviously paying off a smaller amount of money each month is a far more attractive prospect, however this can lead to consumers falling into this 'minimum repayment trap' meaning they end up paying far more than they need too.
Avoid the trap
Lenders make it easy for consumers to sign up for a minimum repayment programme, however, as our content piece shows, it would be far more beneficial for consumers to pay off a fixed amount on their credit card each month. When we conducted this research we found that 11 percent of credit card holders made the minimum repayment on their credit card the previous month, however this number increased to 13 percent of card holders following the Christmas period. These same card holders told us that they put an additional £100-£500 on their card during the festive period. This additional spending could end up costing them more than £800 in interest, so we hope that we have found a compelling way to show the cost of falling into the minimum repayment trap.