Simon Lambert for Thisismoney.co.uk
Building up: As many as 5.1million credit cards may not be paid off in a decade
How much of your credit card bill do you pay off each month? All of it, some of it, or the bare minimum that simply allows you to avoid having to clear your debt?
My guess is that This is Money’s readers err more to the all of it side of things than the bare minimum gang, but chances are you know someone who is doing just that.
Buried in the FCA’s report into credit card borrowing this week were some rather worrying statistics on Britain’s debt-soaked economy.
It showed that 28 per cent of credit cards had their balances fully repaid each month, yet 25 per cent only had minimum payments made and 15 per cent didn’t even get to that.
This means that an astonishing 40 per cent of credit cards payments are for the minimum payment or less.
The report highlights that on current balances and payment patterns 5.1million credit cards would take more than ten years to have their balance cleared.
‘Well that’s their own fault,’ I hear you say. ‘I pay my balance off in full. They should manage their money better.’
But such a response glosses over how big a problem this has become.
That 40 per cent figure for minimum payments or less represents a huge number of credit cards and 5.1million not paid off in a decade – if ever – is a worryingly large chunk of the population.
Somewhere in the middle of the credit card spectrum sit another 32 per cent of cards with between the minimum and full amount paid off each month.
Some will be simply managing their money, using credit cards to spread the cost of big purchases. Others will be doing the best they can but feel that they will never manage to get debts cleared.
This is a problem for all of us, even those who clear their balance in full. The economy is hamstrung by this debt and chances are you know a relative or friend who is buried under it – although it’s not something they’ll often come clean about.
The FCA’s report points in the right direction, text alerts when special deals end, nudges to up payments and better explained fees and charges.
But I believe we also need to do more to help people who want to get debts cleared do so.
If you are a good borrower it’s never been cheaper to get money, 40-month balance transfers and personal loans below 4 per cent are on offer. But those with problem debt don’t fit that bill – they aren’t in the 51 per cent of successful applicants who get those attractive advertised rates.
They get quoted the kind of high interest rates that mean trying to clear their debt becomes an endless and almost impossible task.
The watchdog should come up with a plan to solve this conundrum. Borrowers who will never clear their credit cards at 20 per cent interest would have a much better chance at 6 per cent.
