False sense of security for consumers being asked for minimum repayments on credit cards

January 17th, 2010 | by Admin |

Experts have recently expressed concern that many credit card customers may be getting lulled into a false sense of security as a result of credit card companies asking for very low minimum repayments on their credit card balances.

In the current financial climate many credit card users may be relieved to find that they are only being asked to pay a tiny fraction of the amount that they owe to the credit card firm each month, but many fail to realise that if minimum repayments are continued on a long term basis they will end up paying a fortune in interest and could be lumbered with the debt for decades even if the amount owed is relatively small.

The minimum repayments requested by credit cards should cover the interest for the month along with at least a small fraction of the debt. However, some card companies are asking for such tiny repayments that the principal debt is never being touched and the consumer is left with the debt hanging around their neck for many years. In the report an example included a £1000 with Lloyds TSB credit cards, which could take over twenty years to repay on the minimum repayment.

Defaqto official David Black stated: ‘The differences of how long it will take you to repay debts on different cards are staggering. It is no wonder that consumers don’t fully understand the risks of making only the minimum repayment. That is good for the card companies, because they can charge you interest on your debt for longer.’

There are also concerns that some consumers are paying more interest than they need to as a result of using the wrong card, with figures showing that some people are paying three times more interest than others simply based on the credit card that they are using.

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