Why Credit Card Minimum Repayments Are A Trap
Amongst the many tricks and traps of credit card terms and conditions perhaps the most insidious is that of minimum repayments.
A recent study conducted by lovemoney on the borrowing habits of the nation revealed that 29% of personal debt can be attributed to credit cards but that 50% of people only planned on making the minimum monthly repayment.
3,000 people were questioned about their financial situation, detailing where and how they are in debt.
Consumers buying personal items such as shoes, clothes and furniture were found to fund their spending addictions with a credit card but the survey also revealed that people were paying for more essential items on plastic.
Whether the spending is on essential items or frivolities, however, the trap of only making the minimum monthly repayment is the same: a mountain of interest payments that can take years to pay back.
Unfortunately, this is a standard across the credit card market and can't be solved with a simple credit card comparison
This is for three reasons.
First, credit card minimum repayments are simply set as low as possible.
This is ostensibly a good thing for consumers who are free to pay back as much as they like (as opposed to loans, which often have a fixed monthly repayment amount).
However, since the minimum repayment is often taken to mean the ideal repayment amount consumers can get into debt very quickly.
Paying only the minimum can lead to even a fairly modest credit card debt lasting for years and accumulating thousands of pounds in interest.
Second, is that the minimum repayment clause of a credit card agreement is also often very confusing even for the financially savvy.
It usually comprises of the larger of a fixed amount (often 5) or a small percentage of the total credit card balance (usually 2-3%).
For example, with the Virgin money credit card the user is required to pay back the larger of 25 or 1% of the balance before any default charges and interest plus any default charges and interest on the (previous month's) statement.
This leads to the third problem.
In the case of the Virgin credit card, should the consumer have a balance which is almost over 250,000 they run the risk of missing their minimum repayment amount.
Since that's a large amount the Virgin Money credit card shows itself to be fairly fair when it comes to minimum repayments.
However, if the minimum repayment were the greater of a percentage or 5 it would be easy for a credit card holder to overspend one month and miss the minimum altogether.
In this case, they'd be landed with interest payments probably at a higher rate than ordinary payments on top of the unpaid balance.
Of course, there is a simple solution to this problem one that every credit card holder should learn: make more than the minimum repayment every month.
by: Emily Gorton
Empowerment zone tax credit EZ Tax Credits FICA Tip Tax Credit Credit Card Debt Elimination - How To Find Out Reliable And Genuine Debt Settlement Companies Credit Card Debt Relief - Is Debt Settlement The Right Option For Elimination Of Debt? Hire Act Tax Credits Credit Card Debt Relief - How Debt Settlement Can Be Compared To Consolidation? HR Tax Credit HIRE Act Tax Credit Obama Hire Act Tax Credit Loans For Poor Credit: Making Proper Use Credit Report Mistakes Payroll tax credit