Credit cards Updated:
Working out how long it will take to pay off your credit card balance can require some serious maths skills, but sadly it seems as though many of us get in a muddle when asked to do the sums. As a result, some people may be saddled with credit card repayments for much longer than they anticipate, with the full cost of a credit card remaining unknown.
According to new research by Ocean Finance, many respondents failed to correctly estimate the time it would take to pay off a £3,000 balance on an 18.9% APR credit card with fixed payments of £50 per month.
Of those asked, 80% got the answer wrong or admitted that they didn't know. Nearly a quarter (23%) seriously underestimated the amount of time it would take, suggesting that only five years and 11 months of payments would be needed to clear the debt. Another one in seven (15%) went in the other direction, vastly overestimating the time needed to set the balance at zero, stating that it would take around 25 years to pay off.
Only one in five (20%) correctly estimated that it would take 11 years and 11 months to clear the balance by paying £50 a month.
Predicting the length of time needed to pay off the credit balance was not the only question that gave respondents a headache, as 80% of those questioned were unsure about how much interest they would pay in total while clearing the balance. A worrying one in five (21%) thought that they would only accrue a miniscule £403 in interest, while another one in eight (12%) gave the overwhelming figure of £14,200. Once again, only 20% of respondents correctly calculated the interest to be at approximately £4,120.
Commenting on these results, Ian Williams of Ocean Finance, said: "It is concerning that so many people don't really understand the true cost of using their credit card. While most people do aim to clear the balance in full, paying just the minimum each month, or slightly more, [can mean you'll be paying off] your credit card balance for many years."
Have you been paying a credit card bill for months, or even years, on end? Then it is probably time to take control of your finances and clear that balance for good.
One way to do this is to transfer the amount to a 0% interest balance transfer credit card. These cards can help you to pay off the outstanding balance without gaining additional interest, so long as you pay off the debt within the interest-free period.
Some cards now have up to 36 months of 0% interest, but these cards often carry higher fees and have higher APRs after the introductory offer ends. For this reason, it may be best to opt for the shortest 0% period possible.
Take a look at your credit card balance and divide the amount by the number of interest-free months on a selection of cards. Find a figure that you can manage to pay on a monthly basis to ensure that you clear the debt on time. Once your balance is transferred, make sure you stick to that monthly payment and avoid spending any more on the card. This way, you will have a clear balance by the time the offer expires.
Once you are credit card debt-free, make sure you carefully weigh up the figures on any future credit cards you take out, and try to pay off as much as you can. A little bit of maths can go a long way!
Check out our 0% balance transfer card best buys
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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