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- By: CARYS ROBSHAW
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New research from uSwitch has revealed that some credit card debt can take longer to pay off than the average mortgage. This is alarming as most people enter into credit card borrowing viewing it as a short term loan.It can be safely assumed that those taking out credit cards do not expect to still be repaying their debt on it in thirty years time. But that is exactly the situation which some borrowers find themselves in.
People are finding themselves in this position as a result of making only the minimum repayments on their credit card debt each month. Many may enter into the bargain with good intentions, planning to pay their credit card off in full each month, but then find that they cannot.
The findings from uSwitch have shown that the number of people making only the minimum repayments each month has risen over the past year as more and more people are feeling the pinch.
This has happened as the amount spent on credit cards has steadily risen, leaving many people with debts which they may not have cleared until the year 2039.
Over the past year, credit card spending has risen on average by a huge £179 million each quarter, suggesting that many people are falling back on their credit cards to cover everyday costs, creating debts which they could be repaying for the next thirty years.
The problem has arisen as lenders are keeping the minimum monthly repayments incredibly low, which looks attractive to consumers and benefits the credit card companies as the lower the monthly repayments, the longer the debt will last.
According to uSwitch, the average monthly repayment rate is just 2 per cent, leading customers to make tiny repayments on their credit card each month, dragging out their debt for years.
If people stick to this minimum monthly repayment for the duration of their debt, the average credit card debt will not be paid off until 2039, in 31 years time. Meanwhile, the average mortgage is taken out over a 25 year period, and would be paid off in 2033, a whole six years earlier.
In light of this research, uSwitch is pushing for credit card companies to increase the minimum monthly repayments to above two per cent in order to free people from such long lasting credit card debts.
Head of personal finance at uSwitch, Simeon Linstead said: "Over the past year we have seen an increase in credit card spending, making minimum repayment levels more of a problem now than ever before. With the cost of living on the up and people being forced tighten their purse strings, consumers will be more tempted to just make the minimum payment on their cards and spend the cash on more pressing bills.
"Sending a small monthly payment to the credit card company may seem like a good idea at the time, however this is an expensive lesson in term. We urge the credit card industry to set all minimum repayments at 3 per cent, we have been calling for this, and it is long overdue."
Carys has more articles pertaining to mortgages.