Minimum repayment encouraging credit card debt
Many consumers are being lulled into a false sense of financial security by credit card lenders that are quite happy to accept very low repayments on the credit card balance, but failing to make clear to the consumer that this will lead to a lifetime of debt for many.
Officials are worried that many consumers are heading for a lifetime of debt because they are only making paltry minimum repayments on their credit card debts, which the providers are happy to accept because it means that they keep the customers in debt and make more interest off them.
A recent report also showed that some consumers were paying three times more interest than others simply because of the credit card that they were using. The report said that using the wrong card could be a very costly mistake and could make a huge difference to the amount that the cardholder pays on their debt. In fact, the report claimed that it could take sixteen years longer to repay a debt simply by using the wrong credit card.
The minimum repayments that are requested by credit card providers are supposed to cover at least the interest that is being charged and a fraction of the debt itself. However, for many who are paying rock bottom minimum repayments on their credit cards the debt could drag on for years or even decades, as the repayment that they are making does not even touch the actual debt itself.
For example, making repayments on a Lloyds TSB card at just the minimum amount requested on a £1000 debt would mean that it took over two decades to clear the balance.
David Black from Defaqto stated: ‘The differences of how long it will take you to repay debts on different cards are staggering. It is no wonder that consumers don’t fully understand the risks of making only the minimum repayment. That is good for the card companies, because they can charge you interest on your debt for longer.’
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