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Be warned of only making minimum repayments

Be warned of only making minimum repayments

Category: Credit cards

Updated: 03/02/2014
First Published: 03/02/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Turning to credit cards can be a great choice for a lot of people, but the key to keeping things under control is careful financial management. Ideally you'll want to pay off the full balance at the end of every month to ensure debt doesn't become a burden, but unfortunately some people only pay off the minimum amount. This is something that should always be avoided, as it could mean that summer holiday takes decades to pay off…

These concerns are put into sharper focus when looking at the figures. Research from TotallyMoney.com found that 11% of credit card users surveyed only make the minimum payments each month, which could mean that a £1,232 family trip to Tenerife could take a whopping 10 years and four months to pay off – and it'll add up to £919 in interest, too. That means the bill for the holiday will have almost doubled, and you could still be paying it off in 2024.

It's all too easy to fall into the trap of only making minimum repayments, particularly for those that need to stick to a tight budget. But, when you think about how much more you'll actually be paying, is it really worth it?

Credit card users should think long and hard about putting expensive purchases on the plastic if they can't afford to pay it off quickly, but for those that already find themselves struggling with mounting interest there could well be an alternative – balance transfer credit cards could provide the solution.

Balance transfer credit cards can offer impressive interest-free periods – some as long as 30 months – giving users the chance to pay off the balance without interest adding to the bill. However, chances are you'll still need to pay more than the minimum each month if you're going to pay it off before the interest-free period ends, but even adding a bit extra here and there could soon bring the balance down.

So, be warned of only making the minimum repayments as it could cost you dearly in the long-run – stick to a plan and pay back as much as possible and you could reap the rewards of credit cards without the drawbacks.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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