So-called ‘minimum payments’ on credit cards can be a debt trap if not managed properly.
The minimum payment is the lowest amount you have to pay every month to avoid a penalty.
The amount of the minimum payment is usually based on a percentage of what you owe, so it decreases every month as your balance reduces.
This means that it will take longer for you to pay off what you owe if you stick to only making minimum payments. And it will cost you far more in the long run.
For example, if you borrow £2,000 on a 19% APR and only pay the minimum payment every month:
- it will take you 24 years and two months to repay it
- you’ll pay back £4,731 in total
- the total interest you have to repay will be £2,731.
Credit card providers must contact people who, over the last 18 months, have paid back more in interest, fees and charges than what they have paid back off what they actually borrowed.
To encourage customers to bring down their credit balances, lenders are required to contact customers to suggest higher affordable repayments. If you don’t respond, or ignore the issue, and the situation continues for more than 36 months this could lead to your account being suspended.
Find out what you can do if you’ve been contacted by your credit card provider about persistent debt.
If you’re already struggling with debt it can be hard to know where to turn. But with lots of free advice services available across the UK, you can find help in a way that’s best for you.