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| You Are Here: Home > Personal Finance > Credit Cards > FAQ > Question and answer |
Credit Card Minimum Payments
Why a 2% minimum repayment is bad news
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Last update : September 2010
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Well, it's certainly good news for the credit card companies as it's basically designed to keep people in debt for longer periods of time.
- If you owed £3,000 and you paid the minimum repayment of 5% every month, the debt would be settled in about 9 ½ years, and you would pay about £1,000 in interest
- But if the minimum is just 2% the same debt will take about 37 years to pay off, and the interest bill would be around £5,500
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Paying the minimum balance off every month is therefore one of the worst sins in personal finance.
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However, sometimes we face short term financial problems and in those situations it's fine to make just the minimum payment. But work out a clear plan of how to tackle the main bulk of the debt as soon as possible, perhaps by spreading the repayments over several months.
Remember, with Credit Card debt the more you pay per month the less you pay overall.
See also
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