A Personal Finance Guide

Who’s Responsible For the Credit Card Debts?

When you originally applied for a credit card you were probably offered a 500 limit and over time you find that your provider increased your limit many times. Often they have increased it lywithout you having requested an increase. After many years of using your card regularly your borrowing creeps up due to holidays, overspending, emergencies, treats, etc

In some cases the monthly interest and the payment protection insurance charged mean that you are not paying much off your credit card balance. If you only ever paid the minimum amount off your card each month then your credit card balance is unlikely to reduce by much.

Over the past twenty years we have seen the credit card companies reduce the minimum monthly repayment from 5% when first introduced to 2% today. This has made borrowing money on your credit card more expensive as you are taking longer to repay the initial debt off and at the same time they have become more affordable if you only pay the minimum month repayment amount. This is of course a total contradiction!

If you spent 10,000 on your credit card and paid it back at the minimum monthly repayment of 2% then it would take 47 years and 2 months to completely pay off the original amount borrowed, assuming you never used the card again. This would cost you 16,221 in interest. When cards were first introduced you had to make minimum monthly repayments of 5%. It would have taken you 12 years to pay off the original amount borrowed and it would have cost you 3,298 in interest, once again assuming you never used the credit card again.

Most people think their monthly repayments have become more affordable as they are now paying less for the same debt than they did twenty years ago. For example 10,000 paid back at the minimum monthly repayment of 5% per month is 500 per month; whereas the minimum monthly repayment of 2% per month is 200 per month.

Over the last twenty years as a nation we have become more affluent and our lifestyles have improved remarkably. The credit card companies have increased our credit limits and we have used them to maintain our lifestyles. We have continued to increase our borrowing and the use of our trusted flexible friend the credit card!

Over the last decade we have found it easier to consolidate our credit cards and loans within our mortgages. This has become possible due to the increase in our property values, our earnings and the relative ease of borrowing money. Our day of reckoning has been coming for a while and now most people have an unbelievable amount of debt.

Each time we reach our credit card limit the credit companies increase our borrowing limits again. Then one day we discover that we are in debt to these companies for say 18,000. The question we should be asking is: Are these companies responsible for the amount of debt we have or should we have been more responsible in the way we used our them?

After all MasterCard, Visa and American Express are woven into the very fabric of our lives, our finances and our society; many of us no longer carry much cash. We pay for everything with our credit cards and there is nothing that we cannot buy with them. We use them as though we have earned the money and it is in our bank accounts to pay for our purchases.

Contributing author Mark Aucamp has been providing Talk Money Blog with regular Money Saving Expert advice and comments. Mark has extensive experience in providing advice and solutions. He is recognised as an authority in the field of debt management and mortgage advice. To see if your Mortgage or Loan is invalid and unenforceable go LoanCheck for a free appraisal.