Reducing minimum credit card repayments may seem like a good idea, but research from uSwitch.com has revealed that it could result in the average credit card balance taking longer to pay off than the average mortgage.
According to the research, credit card
spending has risen by an average of £179million quarter to quarter over the last year, despite the onslaught of the credit crunch last August.
As a result, borrowers are now struggling to pay back their credit card balances and paying back only the minimum each month. USwitch.com has revealed that the average minimum payment is only two per cent each month which is attractive to the borrower and to the lender as it takes longer for the debt to be repaid.
In fact, uSwitch.com claims that the average 25 year mortgage
will be repaid in 2033, whereas the average credit card balance will be repaid six years later in 2039. And, as a result, uSwitch.com is urging credit card companies to increase or maintain their minimum monthly payments above two per cent.
Head of personal finance at uSwitch.com, Simeon Linstead commented: "Over the past year we have seen an increase in credit card spending, making minimum repayment levels more of a problem now than ever before. With the cost of living on the up and people being forced tighten their purse strings, consumers will be more tempted to just make the minimum payment on their cards and spend the cash on more pressing bills.
"Sending a small monthly payment to the credit card company may seem like a good idea at the time, however this is an expensive lesson in term. We urge the credit card industry to set all minimum repayments at 3 per cent, we have been calling for this, and it is long overdue."
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