February has arrived and the bleakest financial month (January) is behind us. But we still need to be very careful when using and paying off on credit card.
The payments required by the card company may appear to be getting smaller even though our spending has not. This is because card companies have been sneakily reducing the minimum amount they require customers to pay each month.
- The minimum credit card repayment used to average 2.15% of the amount outstanding.
- This now they are down to 1.53%, according to figures from the TotallyMoney comparison website.
This is not good news. While a smaller minimum may ease the financial strain (especially if you’re still recovering from Christmas) the reality is you will end up paying more. And the more debt you have on your card the longer it will take to pay it back.
Remember, the best customers for the card companies are those that pay the minimum each month without fail. They can be still paying for their holiday or Christmas presents 15 years later.
The good news is that since the financial crash the number of people paying off their credit cards in full each month has increased. These customers have the convenience of their credit card but pay no interest.
So is it surprising that the companies look like they’re making a real effort to make even more money out of those who cannot afford to pay their bills in full?
What to do
Even if you cannot afford to pay the whole amount you may be able to move your existing card debt to a zero interest credit card- But beware – you only pay no interest on the sum moved over (transfer balance) and you must make a minimum payment every month. Any new spending is charged at the card’s regular interest rate.
- You may well need to step up how much you pay back each month if you’re going to be in a position to clear the full balance at the end of the interest-free term.
- For those determined to clear their debts in 2014, an interest-free transfer to a new card, combined with careful use of their original card (from which they have now transferred the balance) should work.
- Use you old card for new purchases (assuming the interest rate stacks up) and pay those card bills off in full each month.
- February, the shortest month, when you have less time between pay cheques and fewer days to spend, is a good time to start.