Warning over credit card repayments

Families are planning to slash their half-term budget, says research

A move by Barclaycard to reduce minimum repayments for certain credit card customers means it could take people 98 years to clear a £5,000 debt.

The group, which is one of the UK's biggest credit card providers, is cutting minimum repayments for selected customers from 2.25% to 1.5%, with a minimum of £5, from July for a limited period.

It said the reduction was to help customers by giving them additional flexibility during the economic downturn.

But consumer website MoneySavingExpert.com warned that the change would mean people who only repaid the minimum amount each month would take years longer to clear their debt and incur high additional interest charges.

The group calculates that someone with a £5,000 balance on which they were charged interest of 15.9%, would take 31 years to pay the money and be charged £5,900 in interest if they repaid 2.25% of the debt each month.

But it warned that the time it would take to get back into the black more than tripled, while the interest paid would nearly quadruple, if the same borrower repaid their debt at a rate of 1.5% a month.

Repaying the credit card debt at this rate would take 98 years and cost £22,300 in interest charges.

Martin Lewis, creator of MoneySavingExpert.com, said: "Minimum repayments are sheer genius for card companies as they get to look generous by cutting costs when they're actually keeping customers perpetually in debt. The clever part is that as the amount you owe reduces, so does the amount you repay, meaning most people are barely covering the interest that accrues, and hardly eating into the amount owed at all."

Barclaycard has 11.7 million customers, with the annual interest rates it charges ranging from 6.8% to 27.9%, with a typical rate of 11.7%.

A Barclaycard spokesman said: "We are doing this to help customers. This is an option we are giving to selected customers for them to be able to make a reduced minimum repayment for a limited period if the customer chooses to do so. We understand that some customers may appreciate this additional flexibility during the current economic circumstances."