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Minimum payments create higher credit card interest charges, research suggests

Minimum payments create higher credit card interest charges, research suggests

Category: Credit cards

Updated: 31/10/2008
First Published: 09/10/2008

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Credit card holders may be facing higher interest charges as a result of minimum payments, research has found.

A study conducted by the University of Warwick's Dr Neil Stewart revealed that the existence of a minimum payment means many people pay less off their monthly bills than they might otherwise.

In a report due to be published in the Psychological Science journal, the psychology researcher notes that 36 per cent of credit card customers pay off more than the minimum but less than the full balance.

As a result, stated Dr Stewart, these customers are facing higher charges than if they paid off the full amount.

"Minimum payments distort the behaviour of many customers in a way that increases interest charges and increases the duration of their debt," he said, although he noted that minimums are beneficial for those customers that might otherwise not pay anything at all.

Last month research by Abbey found that Britons planning to holiday in the sun this winter will put £195 of the cost on a credit card.

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