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3.4 million credit card customers could take up to 31 years to repay £1,384 - find out why
The average 25 year mortgage will be repaid in 2033, the average credit card balance will be repaid 2039.
Rocketing: with gross credit card spending rising by an average of £179 million quarter to quarter over the last year, 11% of consumers making the minimum repayment each month is more of a problem now than ever before
Falling: the average minimum repayment has decreased from 2.65% to 2.54% in the last 12 months - this 0.11% decrease will cost consumers an extra £437 million extra in interest, adding over a year to the repayment term
Debt sentence: consumers making a minimum repayment of 2% per month (£27.68) on the average balance of £1,384 will take until August 2039 with interest totalling £2,828 – by repaying 3% this will halve to 14 years and nine months
Industry problem: 40% (100) of all credit cards require a minimum repayment of just 2% or £5, only 6% demand 4% or more
Getting worse: in the last year two providers have decreased minimum repayment levels by an average of 0.66%: Citi Advantage Gold Visa, Citi Platinum LOB Mastercard and Clydesdale Bank[9]
Reality: consumers making the minimum monthly repayments of 2% on a one week holiday to Mallorca could expect to increase the cost by more than 200% from £1,288 to £3,893 and finally pay for the trip in August 2039
With credit card spending increasing by an average of £179 million quarter to quarter in the last year, a drop in the average minimum repayment could spell more bad news and extra debt for consumers.
uSwitch.com reveals that the average repayment required has fallen from 2.65% to 2.54% (-0.11%). With over one in ten credit cardholders (11%) making the minimum repayment each month, this small reduction could make providers an additional £437 million in interest.
Minimum payment pitfalls
In the last year two providers, Citibank and Clydesdale Bank, have reduced the minimum repayment required on their cards from 3% to 2.25% (-0.75%) and 3% to 2.5% (-0.5%) respectively. Again, this may seem like a very small change but a decrease of just 0.25% can increase the amount of interest paid by almost £800 and stretch the term by an extra seven years.
The Index also reveals that the 3.4 million credit cardholders that make the minimum repayment of 2% each month on the average balance of £1,384 could take 31 years to repay the debt. During this time, these consumers will pay over £9.6 billion of interest collectively or £2,829 each. Increasing this payment to 3% each month could more than halve this to 14 years and 9 months. The higher payment also cuts the total amount of interest by 60% (£1,704) to £1,125.
The Banking Code states that minimum repayments should cover at least the interest charged each month but this doesn't go far enough to protect consumers from a debt sentence that exceeds the length of the average mortgage of 25 years. By not exceeding the monthly interest incurred, consumers are repaying very little towards the outstanding balance.
The effect of varying minimum repayment amounts
Minimum Repayment Amount 2%
Average purchase APR 16.08%
Amount Borrowed £1,384
Total Amount Repayable £4,212.99
Total Interest Paid £2,828.99
Time to Repay 30 years, 11months
Minimum Repayment Amount 3%
Average purchase APR 16.80%
Amount Borrowed £1,384
Total Amount Repayable £2,508.57
Total Interest Paid £1,124.57
Time to Repay 14 years, 9 months
The real cost of a holiday
To set this in context, consumers who purchase holidays on their credit card and proceed to make the minimum repayment of 2% each month will pay far more than they need to. For example, flying to Beijing for six nights would cost an average of £739.
However, by paying for this on a credit card and making the minimum repayment would take 22 years and three months to pay back. Interest will total £1,324 – almost double the cost of the holiday. Flights and a seven night hotel stay in New York would cost £2,532, this increases to a staggering £8,039[10] if just the minimum repayments are met every month at the lowest rate of 2%. This means the interest for the holiday would total £5,507.
However, increasing the minimum repayment by 1% to 3% could more than halve the interest paid by consumers. For example seven nights at a Parisian hotel via Eurostar from London to Paris would cost an average of £1,159. If this was paid for using a credit card at the minimum repayment level of 2% it would take a consumer 28 years and six months to pay off, with interest totalling £2,304.00. However at a minimum repayment level of 3% the interest decreases to £927.70 – less than half.
