Financial solutions company Think Money has welcomed a report from Moneysupermarket.com advising that credit card borrowers could significantly reduce their overall repayment term and the amount they pay by making more than the minimum payment.

Moneysupermarket claimed that the difference between the average interest earned on savings and the interest payable on an average credit card debt (currently £1,989) is £308 a year – meaning it may make good financial sense to use savings to pay off debt.

The price comparison site said with this level of credit card debt, making just the minimum payment could mean the balance takes 22 years and 10 months to pay off. By contrast, paying just £20 more each month would reduce this by 17 years, and would reduce the overall interest paid by a third.

A Think Money debt expert said:

“Making any payments above the minimum, even below Moneysupermarket’s suggested increase, can help the borrower to clear their balance more quickly and reduce the amount of interest they pay.

“Making only the minimum payment may be a tempting option for some people, as it frees up cash in the short term – but it is likely to cost the borrower much more in the long run. As such, we advise people with credit card balances to try and budget for higher repayments where possible.

“But of course, this is not an option for everyone. Some people may find they’ve got to the point where they simply can’t afford even the minimum repayments – and anyone in that situation should speak with a debt adviser about debt solutions that could help.

“Even if the borrower can’t see any way of repaying their debts in full, there is help available – in the form of an IVA [Individual Voluntary Arrangement] or bankruptcy, for example.”

Via EPR Network
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