In January it’s very tempting to only repay the minimum on your credit card debt but this could trap you in debt for years!
If you borrow £3,000 on a credit card and make minimum repayments, it could take over 25 years to repay and you will pay back thousands in interest, but there is an alternative!
The minimum repayment is the lowest amount you must pay each month. Failure to pay on time usually results in a fee and a missed payment can damage your credit score and your ability to get future credit. The minimum payment is usually a percentage of your outstanding balance and is typical around 1-2.5% of how much you owe or £5-£25, whichever is higher.
Did you know paying the minimum payment could keep you in debt for years?
Minimum repayments must at least cover the interest, so your balance will fall each month, provided you don’t spend more. However, as your debt reduces so does the amount you pay. This means it takes longer to clear, and the longer you borrow for, the more interest you are charged. With any debt, the best option is to repay it as quickly and cheaply as possible. Minimum repayments do the opposite making debts last for longer and making more money for the banks.
Borrowing £3000 and repaying minimum amount and with no further spending on the card it would take 27 years with an interest cost of £4000! (Based on £3,000 debt at 17.9%, with minimum payments of 1% of the balance + interest.)
There is an affordable not for profit alternative
Just Credit Union is a not-for-profit savings and loans cooperative run for the mutual benefit of its members and not for the profits of shareholders. We want you to pay off your debts as quickly and cheaply as possible and also start to build some savings. There are no hidden charges, arrangement fees or early repayment penalties. You even get FREE loan protection insurance (conditions may apply). You can borrow from £300 to £15,000 with repayment periods from 3 to 60 months.
Find out more and use our loan calculator to find a period and repayment amount that suits you. Then apply on line today.
