Brits face 17 years of credit card debt misery
On average Brits have £4,500 in credit card debt, which could take 17 years to pay off, according to new research.
More worrying, people are in denial about their credit card debt and have unrealistic expectations about when they will be able to pay it off, a report by peer-to-peer lending firm Zopa has revealed.
It found that two-thirds of credit cardholders are paying interest on their balance each month, with 20% paying only the minimum amount each month.
By paying off only the minimum, borrowers can take up to 17 years to repay the average debt of £4,500 and will actually pay back more than double the original debt.
More than half of borrowers in the UK don't even know the interest rate on their credit card balance - people pay back their debt at an average interest rate of 17.9%.
Brits are also unrealistic about when they will be debt-free, claiming that it will take an average of just three years and 11 months to pay off their credit cards. Less than 3% of borrowers expected it to take more than 16 years to pay off their credit card debt, and only 13% believe it will take more than 10 years to be debt-free.
Unsurprisingly, this level of credit card debt is causing stress and anxiety. Nearly two-thirds admitted their credit card debt was unmanageable, with more than a quarter feeling overwhelmed by the situation.
Credit card debts affect people in different ways: 14% said they worried all the time about their debts, while 18% said it had caused arguments with friends and family and 20% admitted to having trouble sleeping because of debt worries.
"Everyone should be aware of their 'debt age', and understand more about how long it will take to pay off credit card bills or loans under their current situation," says Giles Andrews, chief executive and co-founder of Zopa.
"By paying just the minimum interest on their credit cards, Britons are becoming part of a debt age crisis. Consumers could end up still paying off existing their credit cards even when they are collecting their pensions."
Personal finance expert Mike Naylor added: "It is shocking that more than half of credit cardholders don't know how much interest their credit card charges. I would urge anyone with a credit card to take a good look at their debts, work out how much they owe, what interest rate they are paying and see if there are alternative options to clear their debts.
"It's essential that anyone struggling with debt seeks free debt advice from Stepchange, National Debtline or Citizens Advice to make sure they are dealing with their debts effectively and to see if they have other options."
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.