Store Cards, Credit Cards, When Does it All End?

Whilst we are generally aware that paying off a mortgage – most peoples largest debt – can often take up to 20 years, all too often consumers underestimate the length of time it can take to reduce debts that we generally consider to be short term.

The confusion can often start from there being no defined term for credit and store cards. A mortgage or personal loan set over a specific term is easier for the consumer to understand. I.e. if it’s a 10 year term, you can be fairly certain that it’ll take 10 years to repay, providing that the repayments are all made on time!

With credit and store card interest rates on the rise it is all too easy to sit back and just make the minimum repayment. But with many cards setting the minimum at just 4% or even less of the outstanding balance it means even relatively small debts unicc could hang around your neck for years. Moneyfacts reported recently that even a balance as small as £1000 could take 15 years to pay off by the minimum payments on several store cards.

The other eye opener is the amount of interest payable by making the repayments this way. Borrowing £1000 on an Oasis, New Look or other similar store card today and paying the minimum monthly repayment, will not only mean that it will take until 2024 to pay off the debt, but that in that time you will have paid over £1200 in interest – more than the amount borrowed in the first instant. This is also partly due to the high costs of the cards. With high street store cards such as those offered by Principles and Karen Millen upping their APR’s to nearly 30%, store cards can cost up to 3 times the amount as some ‘best buy’ credit cards.

So perhaps next time a sales assistant offers a bargain discount off of your first purchase to take out a store card, it might be prudent to think a little about it first. Check the details of the card, including the headline interest rate, and any special deals that are involved. The cost of paying back the card will often negate any savings that you may get, but if you are strict, and can pay back the balance before the interest is charged, and then chop it up, you may be able to make a saving. Just remember that taking the card on without thinking it through properly can be hugely expensive.

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