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 With over 30 million credit card users in this country owing a combined £50 billion on plastic, it's not surprising to learn that the banks continue to look for ways to boost their profits in what is still a very rewarding line of business.
Whilst it is difficult to imagine life without the freedom and convenience that the credit card gives us, if your 'flexible friend' is used for long term borrowing, you'll end up playing into the hands of those clever marketing men from the lenders and forking out an absolute fortune in interest charges along the way.
A credit card used correctly can enable you to buy things up front and then pay for them in seven or eight weeks time without incurring any interest charges as long as you repay your statement balance in full.
From time to time we have unexpected expenses such as car repairs or a washing machine breakdown when we don't have sufficient cash to pay for them there and then - this is where the credit card comes into its own as a way of easing your cash flow.
If you are unable to repay your balance for two to three months whilst you are getting your finances back on track, then you will pay interest to your lender for the privilege and this is what the credit card was designed for.
Unfortunately over the years, more and more people have got into the habit of using credit cards to fund their everyday living expenses or to purchase goods, knowing that they will be unable to clear the balance for months or even years.
Now, whilst maintaining a balance on your credit card isn't an issue if you've managed to get your hands on a 0% interest deal, when it comes to paying interest at a rate of almost 20% per annum, it is a different ball game altogether.
The credit card companies prey on our weaknesses by presenting us with the opportunity to make very small monthly repayments. Ten or fifteen years ago, you would have been expected to make a monthly credit card repayment of at least 10% of your outstanding balance, however with many credit card companies this figure has been slashed to as low as 2% or 3% in the majority of cases.
Whilst the opportunity of making smaller monthly repayments may seem a generous offer from those nice people at the credit card company, when you understand the reality of this marketing scam and how much it can potentially cost you, you will be astounded.
So here's the real cost of minimum payments, I hope you're sitting down for this! If you have a credit card debt of £2,500 at an interest rate of 18% and you make just the minimum repayment of 2% each month, it will take you 43 years, YES 43 YEARS, to repay your debt and cost you an astronomical £6,459 in interest charges in the process. By simply paying an additional £25 on top of the minimum repayment each month, you could repay the debt in just less than six years and save yourself £5,118 in interest.
If you find yourself in a similar situation, I hope you can see the benefit of paying a bit extra each month as opposed to having your credit card debt hanging around your neck like an albatross for the majority of your adult life.
If you can't afford to increase your repayments, then you need to look at reducing the interest rate that you're paying.
The Virgin credit card is the current market leader offering 0% on balance transfers for a whopping 16 months, but is not the only interest free option available, check out what else is hot with the moneynet best credit card buys.
Now whilst there are a plenty of short term 0% balance transfer deals available, you may be better looking at a longer term low rate option. For example the Barclaycard Simplicity card currently charges just 6.8% APR on purchases and balance transfers
Another more cost effective option to consider is cancelling the credit card and switching the balance to a personal loan with fixed monthly repayments. Sainsbury's Bank currently charges just 8.1% on loans of £7,000 and above, so why not check out a great loan deal for your circumstances via the moneynet loan search service. If you do take the loan option you must cut up your plastic that you're repaying and close the account, otherwise you may be tempted to use it again and run up even more debt.
So remember, whilst you may find a low credit card monthly repayment convenient and easy to afford, do yourself a big financial favour and make the effort to pay a little extra each month.
At least that way you'll be the one to benefit, rather than boosting the already bulging profits of the greedy lenders.
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