Debt warning for people making minimum credit card repayments in New Year

Shropshire’s not-for-profit savings and loans co-operative Just Credit Union is warning people that only making the credit card minimum repayments could trap them in debt for years.

Steve Barras, development officer at Just Credit Union, said: “It can be tempting, particularly during these challenging financial times, to make the minimum repayment. But what most people don’t realise is how long it will take to pay off and how much interest they will pay.

“If you borrow £3,000 on a credit card and make minimum repayments it could take over 25 years to repay and you will pay back thousands in interest!”

He said the minimum repayment was the lowest amount that must be paid each month. Failure to pay on time usually resulted in a fee, and a missed payment could damage an individual’s credit score and their ability to get future credit.

The minimum payment is usually a percentage of their outstanding balance and is typically around 1-2.5 per cent of how much they owed or £5-£25, whichever was higher.

The minimum repayments must at least cover the interest, so that the balance would fall each month, provided more wasn’t spent. However, as the debt reduces so does the amount paid.

This meant it takes longer to clear, and the longer a person borrowed for the more interest they would be charged. With any debt, the best option is to repay it as quickly and cheaply as possible.

Minimum repayments make debts last for longer, resulting in more money for the banks.

Borrowing £3,000, repaying a minimum amount and with no further spending on the card, would take 27 years with an interest cost of £4,000. This was based on £3,000 debt with a typical rate at 17.9 per cent and minimum payments of one per cent of the balance plus interest.

Mr Barras added: “There is a locally based community alternative. Just Credit Union is a not-for-profit savings and loans co-operative run for the mutual benefit of its members and not for the profits of shareholders.

“We want people to pay off their debts as quickly and as cheaply as possible and start to build some savings. With a Just Credit Union affordable loan there are no hidden charges, arrangement fees or early repayment penalties – there’s even free loan protection insurance (conditions may apply).

“Individuals can borrow up to £15,000, with repayment periods from 3-60 months. We will also carefully check the income and expenditure to ensure that the repayments are affordable.”

Just Credit Union is available to anyone who lives and works in Shropshire or Telford & Wrekin. Anyone interested can find out more by visiting justcreditunion.org