Credit cards – a balancing act

Forty one per cent of credit card users have had a balance outstanding on their main credit card for a year or more, with a shocking 14 per cent saying they have held debt on their card for over five years, according to research from moneysupermarket.com.

Almost one in ten (nine per cent) of credit card holders admit they only pay off the minimum amount each month - this equates to over three million people in the UK. This is a dangerous trap for consumers to fall into as while it may seem like they are only spending a small monthly sum, the interest charged on their balance means the total amount they pay back skyrockets. For example, it would take someone paying back the monthly minimum repayment on £1,000 borrowed at 18.13 per cent APR, 17 years to repay their debt. More shockingly, the amount of interest they would pay is £1,113 - meaning they end up paying back more than double the original sum borrowed.

The average length of time a balance is left outstanding on cards is currently a whopping 21 months, so making sure consumers understand their repayment structure is crucial.

Kevin Mountford, head of banking at moneysupermarket.com said: "Our research reveals credit cards are still playing an important role in the nation's finances, but in the current climate, it's more important than ever for consumers to understand the cheapest way to borrow on their cards and avoid getting stung by high interest rates.

"Credit cards are not designed for long term lending and anyone with an outstanding balance on their card should consider switching to a product offering zero per cent interest on balance transfers, allowing them to pay back the debt without incurring any further interest charges.

"Alternatively, those who need to continue using their card could look for a product that offers promotional deals on balance transfers and purchases, such as the Barclaycard Platinum card.

"However, as with any interest free product, missing a payment or paying late will mean reverting to the card's typical APR, negating any benefit to the consumer.

"The most important thing is that consumers understand the implications of borrowing on a credit card and that paying back the minimum amount each month will dramatically increase the total amount they pay back in the long run."