Monday, October 10, 2011

Why it can take 22 years to pay off your credit card

David Cameron this afternoon said households were paying off their personal debts to help Britain recover from what is "no normal recession", but for those who opt for the minimum repayment, it could be 2033 before they clear their balances.

The Prime Minister told delegates at the Conservative Party conference today that the country has been suffering from a debt crisis and "that's why households are paying down their credit card and store card bills".

It certainly makes sense to pay down your debts if you are in a position to do so. Figures from Moneynet.co.uk have revealed that should consumers with a credit card balance of £2,000, who repay just the bare minimum amount each month, 22 years to clear the balance of just £2,000 – paying an extra £2,275 in interest in doing so.

If a borrower with a £2,000 debt makes monthly repayments of £50 it will still take in four year and 11 months to pay down the debt, at an interest cost of £939.

It would take 28 years and three months to repay a £5,000 card debt repaying the minimum each month. You would pay £5,912 in interest.

According to figures from the Bank of England, consumers have racked up a £57bn bill from credit cards but increased competition in the market will give many borrowers time. more