Lisa Taylor, analyst at Moneyfacts.co.uk, comments: “During the last generation, we have moved from an era where credit was hard to come by, where people saved up to make large purchases and where many more people lived within their means, to now where we see credit being used by many as an essential tool to meet day to day living and to make those more expensive purchases.
“But by relying on plastic to supplement to our income, rather than to manage our cash flow, it’s easy to see how some people can be caught in a debt cycle, facing a lifetime of debt. In August it was reported that £53.4 bn was owed on credit cards, with 74.3% incurring interest, based on an average rate of 14.9%. It is easy to see that it’s a lucrative business for the card providers, taking a slice of a £6 bn annual interest bill.
“Used wisely, credit cards can be a great budgeting tool, but it’s too easy to fall into in the trap of only paying the minimum payment each month, perhaps not realising that this debt could outlive you. The combined effect of rising interest rates and falling minimum repayments means more and more of us will be spreading debt over a much longer period, and in some months not even covering the interest bill with the minimum repayment.
“With over 60% of credit cards requiring minimum payments of less than 3% of the outstanding balance, - it seems more of an irresponsible lending issue than providing too much credit. While it is made clear on statements that repaying the minimum amount will spread the debt over a longer period, more needs to be done. Surely no one would be prepared to pay for this year’s holiday for their entire working life. It’s only too easy to borrow and by making the repayments so low, it’s more than affordable on a monthly basis.
“Borrowers need to take control of their own credit card destiny: simply by increasing the amount they pay each month, even by a small amount can knock years off your debt. But don’t make the mistake of assuming you are restricted to paying either the minimum repayment or your balance in full. A great way to stay in control is to set up a standing order at a repayment amount you can afford, changing it as and when your circumstances change.
“Don’t line the card providers’ pockets with extra interest and worse still find your credit card debt outliving you. Take control of your credit card debt and save a packet in interest charges.”
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