February 18, 2006

It was claimed yesterday that credit card companies and banks are not doing enough to help consumers out of debt by consistently having their credit card minimum payments set low.

USwitch the price comparison site carried out a survey on all available and found that it could take a consumer 32 years to repay an average credit card balance if the borrower only paid the required minimum payment every month.

Lower minimum payments are often set between 2% and 3% of the overall balance owed on the credit card. The lower minimum payment requirement lull the consumer into a false sense of security, while all the time the credit card balance they owe is not being reduced the way it should be each month due to the extra interest that is being added.

USwitch found that a credit card consumer with an average debt of £3138 and who kept to a minimum payment of 2% would take over 31 years to repay, while a consumer who repaid their balance at 3% would take over 16 years to have their debt repaid.

The low minimum repayment requirements are seen by many as a blatant attempt to increase profits using consumers.

It should also be pointed out that the low minimum payments can be useful to some consumers when they want to take advantage of the various 0% credit card deals that are currently on offer.

Barclaycard said,: “Last year we introduced ‘Flexi-rate’, the first credit card to offer a lower annual percentage rate when customers increase the amount that they pay back. With a clear, responsible approach, customers can choose to repay just a little or a whole lot, depending on what suits them each month — and that’s exactly what most of them do.”