Thirty years is the typical length of time for a home mortgage, but now it can be how long you stay indebted to the credit card companies. If you pay just the minimum amount due each month, you can find yourself in debt for the next 30 years not to mention how much interest you will be paying as well.
The Minimum Payment
It is thought that just one in every ten holders of credit cards pays just the minimum amount due on their credit card bills each month. Most of the major credit card companies calculate just 2% to 2.5% of the outstanding balance as your minimum payment. The producer of this research, Website uSwitch points out that someone that is in debt for 1812 pounds and repays their balance at the rate of 2% will find themselves paying off that balance over the next 29 years. The interest payment would be more than the debt at 2858 pounds. That is outrageous!
And while the levels of debt rise in the United Kingdom, there are some credit card companies that have reduced even further the minimum amount due each month.
They are not Playing Fairly
Whilst it would seem that the credit card companies are taking the financial crunch into account to ease the financial burden many United Kingdom consumers are facing, it also means that with interest rates rising they are subjecting these consumers to a longer “debt sentence.”
Many credit card companies now include a warning about only paying the minimum amount, though it seems that it is still unclear to consumers what it means in the long run if they pay only the minimum amount each month. Financial experts feel that the minimum payment due each month is not justified at such a low repayment rate and that the industry needs to agree to a minimum repayment of no less than 3% on every major credit card.
It is thought that if the minimum payment is raised to 3% of the outstanding balance that it can cut the time in half that it would take to repay the average debt of most credit card holders. It will also cut the interest that the consumer is paying which means more money in their pockets rather than lining the purses of the credit card companies.
If credit card holders sat down and figured out the numbers they would see that paying off their credit cards more quickly would be a financial boon to them in the long run. You are always advised to pay above the minimum amount due on your credit card and this is especially true of cards that have high interest rates. Being in debt to the credit card companies can have a negative impact and not just on your financial outlook, but on your credit reports as well. Having an income to debt ratio that is high keeps you from reaping the benefits of low interest rates on such major purchases as a new home or automobile. If you are going to use your credit card, you are advised to use it wisely and pay back the outstanding balance as soon as you are able. |
