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By Reno Charlton
Staff Writer, 17 October 2008
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RECENT minimum repayment cuts have been proposed as a benefit to cardholders to help ease the strain of monthly debt repayments, but cardholders who never overpay could be in debt for over 80 years.
The Halifax, shortly after being taken over by banking giant Lloyds TSB, have halved the minimum repayment amount required each month on an outstanding credit card balance.
The Halifax have proposed this change to help people who have withdrawn a lot of money on their credit cards and that the changes to the terms and conditions will be of benefit to people who have to pay large amounts of interest to better deal with their bills.
However, many credit card customers could be left facing many years of credit card debt due to changes in the required minimum repayment amount, especially those people who are being charged an average rate of interest.
Officials have said that the Halifax could end up getting millions of extra pounds in interest payments as a result of the changes, and the people left to pay these extra charges will be the cardholders.
The millions of cardholders have been told that they do not need to make as high a minimum repayment as previously, and whilst this means that the monthly minimum payment will be less, it also means that they will be paying back the debt for far longer and will end up paying much more in terms of interest.
Previously, Halifax cardholders had to pay at least 2% of their outstanding balance back each month. However, the recent changes now mean that cardholders only have to pay the greater of 1% of the outstanding balance or interest + fees + £5.
Although many cardholders may think that this is good news as they won't have to pay back as much each month, if a cardholder only ever paid back the new minimum amount on a £5,000 balance they would be paying back the debt over 80 years and end up paying over £30,000 in interest.
An official from the Halifax said: "This is mainly aimed at those customers on high interest rates to help them pay off more of the capital on their credit card."
However, an industry official said: "On closer inspection, it doesn't seem that all customers will benefit from this change and some people would be better off under the old minimum repayment."
Minimum repayments are required minimum amounts to be paid back each month to remain within the terms and conditions of the credit agreement.
However, minimum repayments are just that and should not be thought of as a long-term solution to large credit card debts.
If you have a large balance outstanding on your credit card you should try and repay as much as you can comfortably afford to, and only use the minimum repayment amount in months that are very financially tight.
If you have a good credit rating you can also consider switching to a promotional 0% interest balance transfer deal - which will allow all of your payments to go towards repaying the balance instead of battling against interest charges.
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