Credit card providers could be giving their customers a ‘debt sentence’ of almost 30 years, because minimum repayments mean that’s how long it will take for them to pay off their credit card debt, according to research from uSwitch.
uSwitch’s Minimum Repayment Index comes after two major credit card providers have lowered the minimum repayments that customers must make each month to 2.25-2.5%.
The industry average is 2.65%, but some credit card companies allow repayments as low as 2%, which for the 10% of card holders that pay only the minimum amount, could mean it will take years for them to be debt-free.
In response, uSwitch is calling on credit card providers to raise their minimum repayments to at least 3% for all customers, which could half interest repayments by £5.5 billion and cut the time it will take to pay off the best to 15 years.
Mike Naylor, Personal Finance Expert at uSwitch.com said: “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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