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Having plan on repaying your credit card balance will help you to close your dept quickly. If you only repay the minimum amount each month on a credit card, which requires you to pay a minimum of 2%. It would take 26 years to settle a credit card debt of $3,000, and at the end of this period you would have paid out $2,463 in interest.
One in eight of us only ever pays off the minimum – and the card companies are making it as tempting as they can for more of us to do the same.
Barclays has dropped its minimum monthly payment from 5% to 2.5 %; Halifax, Bank of Scotland and the Co-op have reduced their minimum repayment to 2% per cent.
You should use credit card wisely in order to avoid spiraling debts. The best way is to clear the debt before you start spending again. Put yourself on a budget, where you can afford to pay more than the minimum.
It is also worth shopping around and transferring the outstanding debt to a firm offering 0% or low rates for balance transfers.
Credit card companies have been reducing the minimum payments required so they can make more money. It makes sense for them as the longer it takes someone to pay off their debt the more interest the cardholder will pay.
But it’s a bad idea for a customer to pay back their debt over the longest period possible. Even increasing your repayments by a small amount can dramatically reduce the interest you pay and the time it takes to clear your debt.
MPs are now pressing for credit card firms to include warnings on statements urging customers to pay back more. Try to prepare your budget on repaying your credit card balance and close your depts as quick as possible.