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6 August 2007
A recent industry report has highlighted the financial problems that could face credit card holders in the UK that insist on making just the minimum repayment on their credit card balance.
The report suggests that some consumers with credit card balances could be facing around three decades of debt, with hefty interest repayments added to their original balance.
The research showed that an alarming number of consumers in the UK are making only the minimum repayment on their credit cards, and this is made worse by the fact that some credit card companies are setting their minimum repayment level so low that the interest charges is more than the repayment being made, which means that the balance will never go down unless the cardholder starts to make repayments that are higher than the minimum amount requested.
According to the reports someone with a relatively low credit card balance of around two thousand pounds could spend nearly thirty years repaying the debt if they stick to minimum repayments. It also means that they would pay around three thousand pounds in interest on the balance.
This is why customers are now being urged to pay off their credit card balances as quickly as possible rather than allowing them to accrue interest and leaving themselves at risk of decades of debt.
Credit card companies are also being urged to review their minimum payment levels, and to raise them to a level where the consumers has some chance of clearing the balance on the card within a more viable timeframe.
Experts are concerned that in some cases consumers could actually end up repaying their mortgage before they have managed to repay a two thousand pound balance on their credit cards.
According to one industry professional: "In an environment of rising interest rates where personal debt in the UK has reached a staggering £1,325 billion, of which credit card debt accounts for £54 billion, consumers could now finish repaying their mortgage before their credit card, despite the huge disparity in sums borrowed. Despite the introduction of 'health warnings' on credit card statements, the implications of making the minimum repayment each month are still not clear enough to consumers."
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