Paying over minimum 'can slash credit card debt'

10/09/2009

Brits can make "staggering overall savings" if they pay just a small amount above the minimum repayment on their credit card each month, according to Confused.com.

The comparison website is encouraging consumers to "take control" of their debts by targeting their most expensive outgoings.

With recent research from Moneynet indicating that the range of interest-free balance transfer deals is shrinking as a result of the recession, Confused.com's head of credit cards Joanne Garcia said paying back "just a small extra amount" each month can be a "really effective" alternative for reining in credit card debt - especially if borrowers are currently only making the minimum repayment.

Someone with a credit card balance of £5,000 at an interest rate of 14.9 per cent would need 36 years to clear the debt if they only paid the minimum two per cent each month. They would also rack up £7,000 in interest alone.

By paying an extra £10 a month, they would cut their repayment time by 20 years and reduce interest charges to £4,200.

"If you can't switch to a cheaper credit card, you can still make staggering overall savings by making more than the minimum repayment every month," Ms Garcia said.

EuroDebt director Kevin Still said: "The average APR is now over 18 per cent and many card issuers have increased their rates on existing balances, meaning that the minimum payment is only covering the interest and the balance isn't reducing at all.

"It is often the case that the repayment options offered by the card issuers via direct debit are geared to the minimum payment rather than a flat payment each month that would accelerate the rate that the debt balance is cleared.

"Some of this down to consumer education and checking the small print with your card provider. Stealthy changes in terms and conditions are meant to be a thing of the past, but it is my experience that you have to check the post fairly careful each month to pick up on the financial impact of some of the changes.

"If you are unable to meet minimum payments then it recommended that you avoid juggling balances and making the situation worse where you borrow more just to service interest charges through a higher interest credit agreement.

"Take advice and try to negotiate with your creditors, most have reviewed their policies for people in hardship during the recession."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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