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Can you answer this credit card teaser?

Do you know how long it will take to pay off your credit card balance? Credit cards can be a slippery product to get to grips with and minimum monthly payments can prove a bit of a stickler. If you’re one of the 10% of credit card users who say they only make minimum payments, this information is even more important for you to know.

The Debt Advisory Centre posed the following question to people – could you answer it?

Q: If you had a £1,000 balance on a typical credit card with an 18.9% APR, and paid a minimum monthly payment of 2.5% or £15, how long would it take you to pay off?

(a) 5 years, (b) 9 years, (c) 19 years, (d) 29 years, (e) I don’t know

A: The answer is nine years. 

Didn’t get it right? Well, you are not alone. A substantial 80% of people didn’t know the correct answer.  But, if you don’t want to get stung by your credit card, take the time to read below and understand what minimum payments mean and the impact of using them.

Credit card calculations

Just a fifth of people answered this question right. Almost a quarter believed it would take between 19 and 29 years to repay the balance in full and a fifth were more hopeful – believing that it would take just five years to clear the balance.

However, the most popular answer was ‘I don’t know’ (38%).

Minimum monthly payments can be tempting. You feel like you are tackling the debt ,. But the truth is that you probably aren’t – well not as much  as you think.

Credit cards charge  interest, so if you only pay the minimum monthly payment you will be paying a lot more in interest than if you pay off the total every month.

Even better, with a standard credit card, if you always pay off your monthly bill in full, you can enjoy between 45 and 59 days of interest-free credit. 

One of the best things you can do is use a credit card calculator to work out how much your credit card could end up costing you.

 

How to manage your credit card better

Credit cards aren’t a bad thing in principle - if you can pay them off without any problems, they are a safe and secure way to spend.

You are protected for any purchases between £100 and below £30,000 – so if you book a holiday and the provider goes bust, your card company should cover the cost. They can provide an extra layer of protection you’re not guaranteed with cash.

Freebies often come with credit cards too – things like air miles, reward points and cashback.

But it is easy to get caught up in a cycle with your credit card.

If you’re worried you’re not paying off your credit card in full, remember that the most important thing is to always get your repayments in on time. Not putting in repayments on time could damage your credit score, which can make it more difficult to get credit in the future.

A Direct Debit is a great way to make sure you don’t forget your repayments.  If you’re going to be late, do call your credit card provider to let them know.

If your credit card payments are getting on top of you, and are affecting other areas of your life, such as your ability to pay your rent and bills, take the time to talk to someone about it. Speaking to a debt advisor is quick, simple and confidential.

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  • Greenman / 20 March 2016

    Good advice warning of the dangers of underestimating the effect of only making minimum payments, a large proportion of will simply go to pay off interest. However, you missed the most important advice for people considering making a purchase on a credit card. Forget worthless freebies designed to lock you into a poor value high interest card, there are plenty of cards out there currently with long interest free periods like the Post Office Money Card's current 27 months interest free offer. Taking this or similar card and dividing your monthly payments by the interest free period will see you clear the debt and pay no interest at all as long as you don't miss a payment or overspend your credit limit. Check out the reputable consumer comparison websites on these like Money Saving Expert to get the latest deals on these, it's a no brainer, then go back to sleep at nights!

  • Pollyanna / 20 March 2016

    Credit cards are a really good way to manage your day to day spending, and get cash back into the bargain, but there is alwayss a catch, and always paying your monthly spend off in full every month is the catch. So know how much money goes into your bank account every month,know how much of that has already been accoubted for [ie the must pays' - council tax, water rates, mortgage/rent, food,tv licence etc,] then see how much is left in 'free to spend' on next set of basics, car,clothes etc, and write everything that you spend down, so that you know, and can check before you spend anything, that the money is there and you are not going to put yourself into a position where you cannot pay off your bills in full at the end of the month.