Know credit and steer clear of potential credit related issues

Paying just the barest minimum requirement won’t do.

10:04 08 November 2014

Don’t get yourself trapped into paying credit card debts forever needlessly; calculate your debts with a credit calculator.

 

If you are not yet aware, we would like you to know that if you borrow £3,000 when you are 21 years old and just pay the minimum credit card payment, you will be clear of the debt by age 50.  Unbelievable but true!

 

Understanding the basics of minimum repayments

 

Credit cards payments, in contrast with loans and mortgages, give you more flexibility in that you can pay whatever amount you want as long as it is not below the required minimum payment or you will be slapped with additional charges.  

 

The amount is not fixed because the percentage accounts for the balance of the credit.  The amount that has to be repaid each month is reduced as your balance is reduced.  The longer it takes you to settle the amount in full, the more interest you are charged at 20% per annum.

 

Simply put, the earlier you repay your debt, the less it will cost you.

 

Credit card companies love it when you just pay the minimum... you are their kind of client and you make it possible for them to earn more than what they deserve. 

 

Credit card applications which were approved as of April 1, 2011, minimum repayments is pegged for at least 1% of the credit balance, add to that the interest charges for that month, the annual fee and other default charges.

 

Some credit card establishments require a minimum amount such as £5 per month, for others it could be higher such as £25 a month minimum payment. Thus, you can see terms indicated such as:

 

"Greater of 1% of balance plus interest, 2.25% of balance or £5"

 

In this case, you will have to pay the greater amount.

 

Why is this terms of payment like a death trap?

 

Borrowers who do not closely analyze or close their eyes to the disadvantage of paying only the minimum are in for the worst.  While borrowers should aim for paying their credits within the shortest time possible, the banks aim for the reverse and they hope to keep their clients in eternal debt while paying the atrocious interest.