Working out how long it will take you to clear off your credit card balance can take some serious skill and can confuse us. As a result, some people are left with repayments for much longer than they anticipated and the full cost of the credit card remaining unknown.
According to research carried out by credit card provider Ocean Finance, many failed to correctly estimate the length of time it would take to clear off the balance of £3,000 on an 18.9% APR with a fixed payment of £50. Nearly a quarter underestimated the amount of time it would take, suggesting that the balance would be clear in only 5 years and 11 months. In reality, it would take 11 years and 11 months by making the minimum monthly payments of £50.
Another calculation that people trip up over is how much interest they would incur in total when paying off the balance. A worrying 1 in 5 believed that they would only accrue a miniscule £403 in interest - the actual figure is approximately £4,120 for the initial £3,000 borrowed.
Ian Williams of Ocean Finance says, "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”.
If you are in a position to do so, it is worth taking control and clearing the balance on your credit card for good. One way to do this is by using a 0% interest balance transfer card. These can help you to pay off the outstanding balance without racking up additional interest, as long as the balance is paid within the interest-free period. Some cards now offer up to 36 months of 0% interest, but can sometimes carry higher fees and have higher APRs after the introductory offer ends.
Once you have cleared the balance and you are credit card debt-free, it is worth carefully weighing up the figures on any future cards you take out, and try to pay off as much as you can – a little bit of careful planning can go a long way.
Kirstie has a degree in Forensic Science from Bristol University, West of England. She is a qualified lifeguard, and a keen runner, having completed the Great South Run twice. Kirstie writes on all topics related to credit.
Kirstie is a Senior Credit Analyst at checkmyfile.