Extortionate minimum repayment trap leaves borrowers thousands out of pocket, warn credit experts
Jan 21st 2020
- Only making the minimum repayment each month will take over 26 years to clear a credit card balance
- Customers expected to lose a staggering £3,775 due to interest
- Fixing monthly repayments to the first minimum repayment amount will save £2,367 in interest
- Just a mere 1 in 5 know about the dangers of the minimum repayment trap*
The shocking figures are based on only making the minimum repayment on a credit card balance of £2,604†, with a fixed interest rate of 19.9%APR‡.
Small change, big win
The credit experts advise that one way to avoid this pitfall is by paying a slightly larger, fixed amount each month.
Alastair Douglas, CEO of credit experts TotallyMoney, comments:
- 1) Move your debts to a balance transfer cardIf you’re currently paying interest on a credit card balance, you could transfer it to a balance transfer card. These cards let you pay off the balance over a certain amount of time, with no interest. There’s often a small transfer fee, which is worked out as a percentage of how much you transfer, but this is usually much less than what you’d pay in interest otherwise.
- 2) Use a 0% interest purchase cardThese cards come with a period of interest-free spending. That means you can make a large or unexpected purchase, and clear the balance over a set number of months — without building interest.
- 3) Consider getting a personal loanThe next time you need to borrow money, you may find that a personal loan is a better option for you. With a personal loan, you’re told upfront the fixed amount you’ll have to repay each month, as well as its total cost over the length of the loan. You should avoid payday loans though, as they have very high interest rates, making the total cost of borrowing very expensive.
With any card or loan, it’s always best to check your eligibility on sites such as TotallyMoney before you apply. This lets you see how likely you are to be accepted for what you want, reduces your chances of rejection, and helps protect your credit rating.
*TotallyMoney annual Financial Awareness Survey [conducted by OnePoll. 2,000 UK Adults December 2018]
†Average credit card debt per household: The Money Charity [October 2019]
‡Average interest rate figure of 19.9%APR: Bank of England [December 2019]
Calculations made using the CardCosts calculator [January 2020]
For more information, please contact James McCaffrey
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