13 October 2008
The presence of a minimum repayment level on a credit card can lead to larger debts as it often discourages consumers from paying off their balances in full, new research shows. According to psychologists at the University of Warwick, credit card customers become fixated on minimum repayment levels, which act as an "anchor" to lower the actual amount people choose to repay. Their research shows that 35% of consumers make only partial repayments on their credit card balances each month, effectively causing their arrears to escalate. Researcher Dr Neil Stewart said: "Minimum payments distort the behaviour of many customers in a way that increases interest charges and increases the duration of their debt." He said more must be done to help consumers understand how much different levels of repayment will cost them in the long term. Last month, uSwitch.com urged consumers to avoid making minimum repayments only, claiming that a balance of £1,384 could take up to 31 years to pay off if they do so.
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