Exclusive research carried out for SavvyWoman shows that most people don’t know how long it takes to pay off credit card debt if you only pay the minimum each month. Many underestimated it by at least 12 years.
Most people unaware of credit card debt trap
Do you know how long it would take to pay off your credit card debt if you owe £1,000, are being charged 18% and you only make the minimum payments? No? You’re not alone! The answer is 17 years, but when we asked Opinium to carry out research on over 2,000 adults, over nine out of ten adults – 97% – gave the wrong answer.
Four in ten adults thought it would take three or five years to pay off £1,000 in credit card debt.
Here’s what people told us:
- 17% of UK adults think it takes three years to pay off the debt (16% of men and 18% of women).
- 23% of UK adults think it takes five years to pay off the debt (18% of men and 27% of women).
- 15% of UK adults think it takes seven years to pay off the debt (16% of men and 13% of women)
- 21% of UK adults think it takes ten years to pay off the debt (22% of men and 19% of women).
- 5% of UK adults think it takes 13 years to pay off the debt (5% of men and 4% of women)
- 3% of UK adults correctly think it takes 17 years to pay off the debt (4% of men and 3% of women).
- 4% of UK adults think it takes 22 years to pay off the debt (5% of men and 3% of women)
- 13% of UK adults think it takes 25 years to pay off the debt (13% of men and 12% of women).
SAVVY TIP: If you only made the minimum payments (typically 2.5% of the balance or 1% of the amount you owe plus interest and charges), you’d pay at least £1,200 in interest – more than the original amount you borrowed.
If you owe £500 on a credit card charging 18% and only make the minimum payments it will take 12 years to pay it off.
Why minimum payment warnings are needed
I believe that credit card companies should include more prominent warnings on statements about how long it could take to clear your credit card debt if you only make the minimum payments. They should also make it easier to increase your minimum payments.
The financial regulator, the Financial Conduct Authority, has found that over 1.6 million people are only making the minimum payments. The FCA’s study of the credit card market earlier this year found that people who make the minimum payment are the most profitable for credit card companies and it also found that most firms do very little to help these customers.
What you can do
If you can’t afford to clear your credit card debt in full in a month or two, work out what you can afford and pay that. Just doubling the minimum payment on a £1,000 credit card charging 18% interest (so you pay £50 a month rather than £25, initially) would mean you can pay off your debt in three years rather than 17.
You can find out how much an extra payment would make to your credit card debt by using the Card Costs calculator on the UK Cards Association website.
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