Credit card debt could take ten years to pay off

Financial website Moneynet has warned that borrowers with an average debt of £5000 attempting to repay their credit card debt by paying the minimum monthly payment of 5% could face a repayment term of up to 10 years.

The website claims that with some credit cards charging in excess of 1.3% per month, interest of £60 per month will eat into the monthly repayments making it even more difficult to clear debt. Moneynet also warned borrowers inclined to persevere over the full ten year period they would incur total interest charges of over £1700.

Richard Brown, chief executive of Moneynet.co.uk, said with personal loans charging an APR of less than 6% debt could be cleared in two years with a monthly repayment of a little over £220. In addition, the total interest incurred over the period would amount to £300. He also suggested it could be more profitable to transfer the balance to one of the many cards now offering competitive introductory rates on balance transfers.

Brown claimed another alternative for people with large credit card debts would be to incorporate the debt into their mortgage. However, he warned that while monthly repayments may look inexpensive it should be remembered that most mortgages run for 20-25 years so the total interest paid could be a lot.

Brown said: “For most people it makes sense for them to either switch to a more competitive card of consolidate the debt into a low rate personal loan. The remortgage option should only be pursued after careful consideration and after having taken proper professional advice.”