Credit card debt can be a scary thing, even for those of us who supposedly should know what we’re doing with our finances.
In The Debts That Wouldn’t Die, The Fool gives a few scenarios of how long it can take to pay off a credit card debt if you’re only paying the minimum amount:
So, using an MMR (minimum monthly repayment) of 2%, it will take you almost 32 years to clear your original debt of £2,200, and cost you a grand total of £5,825… Simply increasing your MMR by a fraction to 2.5% knocks more than a decade and £1,442 off your long slog. Furthermore, bumping up your MMR to a more sensible 5% will bring down your repayment period to less than nine years, and reduce your interest bill to a more modest £739.
As the article suggests, the minimum monthly repayment is the work of the devil! As your balance reduces, so does the repayment amount, frustratingly lengthening the life of the debt. But by making overpayments you can make a big difference.
It’s not always easy to use such examples without being able to directly compare them with your situation, and this is a difficult calculation that’s going on.
Luckily, there is an online tool that will allow you to put your own figures in and will show you how long it will take you (and how much it will cost) to pay back your debt. Use the Whats The Cost credit card calculator and see for yourself.
It’s worth noting that this tool also appears to take into account the normal minimum £5 monthly payment that credit card providers impose.