UK Credit Card Debt
17th July 2019
According to Money Statistics, produced by The Money Charity last month, it would take the average person in the UK 26 years to pay off the average credit card debt if they only make the minimum payment each month.
With the average credit card debt per UK household standing at £2,655, and the average interest rate on credit card debt being 19.87%, The Money Charity calculate that it would take a quarter of a century to pay this balance off, if only making minimum monthly payments.
Under Financial Conduct Authority (FCA) rules, the minimum credit card payment per month must be at least interest, fees and charges plus 1% of the outstanding balance, with many providers adopting this as standard, often with a flat minimum payment as well, for example £5 per month.
The Money Charity take this formula as the basis of its calculations. As the overall balance falls each month, so too does the minimum amount, creating very slowly decreasing payments.
At 19.87%, and making the minimum monthly payment, the average household credit card debt of £2,655 would attract £459 in interest in the first year – an average of £38.25 per month. If a consumer continued to pay off the credit card at the first month’s minimum payment per month, they would then pay the debt off in 5 years and 3 months. However, they would still have paid a total of £1,446 in interest, demonstrating the challenge of paying short-term interest rates on long-term debt.
FCA data from 2016, showed that 25% of credit card holders paid just the minimum repayment each month, alongside 15% who were in arrears.
Erik Porter, Acting Chief Executive of The Money Charity, says:
“This stark calculation shows exactly how problematic credit card debt can become if not taken on with a mindset of fully understanding the product, its total costs and affordability, looking towards how it can be managed sustainably by planning and budgeting accordingly. It is essential that consumers appreciate that credit cards can be a helpful financial tool to be used wisely but mustn’t be treated as an inconsequential loan. While the calculation is an extreme one, sadly it does seem a plausible scenario for too many people.”
He adds: “It’s highly welcome then to see the development from the FCA of new rules surrounding ‘persistent credit card debt’, more proactively prompting users to reduce their debt as well as being offered reasonable ways to repay in extreme cases. We await with interest the impact of these new rules.”
Get the full picture and many more fascinating facts about money in the UK in The Money Charity’s monthly Money Statistics.
The Money Charity
The Money Charity is the UK’s leading financial capability charity. They believe that being on top of your money means you are more in control of your life, your finances and your debts, reducing stress and hardship, and that being on top of your money increases your wellbeing, helps you achieve your goals and live a happier more positive life as a result.
They empower people across the UK to build the skills, knowledge, attitudes and behaviours, to make the most of their money throughout their lives. Find out more.
Halifax and Santander
If you’re looking for ways to be smarter with your money, you can also head to either Halifax or Santander in Garden Square Shopping Centre to talk about their various products, services and options.
Their staff can help to ensure that you manage your money as effectively as possible – whatever your situation and whatever your level of savings and/or debt. After all, if you take care of the pennies, the pounds will take care of themselves…
