Adults could be facing ‘decades of debt’ as new research reveals that most people seriously underestimate how long it takes to pay off credit card debt.
The study shows that 97 per cent of adults in the UK do not know how long it takes to clear £1,000 on a credit card when making minimum payments.
The number was even higher for 18 to 34 year olds, at 99 per cent, the survey by SavvyWoman.co.uk found.
Only 3 per cent of adults gave the correct answer of 17 years when asked how long it takes to clear £1,000 on a credit card when making minimum payments at the typical interest rate of 18 per cent APR, the study found.
That is how long it would take someone to pay off the £1,000 balance entirely if they only make the minimum payments, which are typically 2.5% of the balance, the report stated.
It added that they would also pay an extra £1,200 in interest – more than the original debt.
However 40 per cent of adults believed it would take three or five years to clear the debt, the study found.
Official figures show that 1.6 million people are repeatedly making minimum payments on their credit card, according to the company.
Sarah Pennells, founder of SavvyWoman.co.uk, said: “Over a million and a half people are only paying the minimum on their credit card balance, and they could be sleepwalking into over a decade of debt.
“You won’t be debt free for 17 years if you owe £1,000 but even a modest £500 balance would take almost 12 years to clear if you’re being charged 18% and are only paying the minimum.”
“Credit card companies aren’t going to look out for you if you’re paying the minimum, because the longer you take to pay, the more profit they make from you.
“You don’t need to have a fortune to make a real difference to the repayment times.
“If you can double your payments on a £1,000 debt, so you pay an extra £25 a month, you’d be debt free in less than three years.
She added that the FCA’s study of the credit card market earlier this year found that people who make the minimum payment are the most profitable for credit card companies and it also found that most firms do very little to help these customers.
“My challenge to credit card companies is to make it very easy for people to pay more than the minimum.
“Credit card companies could, for instance, put an example in the statements of how long it would take to clear the balance and they should also encourage people to pay extra by showing them how much they could cut their repayment times by,” she said.
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