Stop milking us for everything we've got

by Ed Bowsher on 24 June 2009  |  4 comments
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Minimum payments for credit cards are too low.

Picture the scene: You're struggling to make ends meet, and every month your credit card repayment takes a big bite out of the household budget. 

Then suddenly, you get a letter from your card provider telling you that you don't need to pay so much back each month, because they're lowering the minimum monthly repayment (MMR) you have to make on the card. Fantastic, right? 

Wrong. 

When card providers lower your minimum monthly repayments like this, they tend to make it sound like they're doing you a favour. In fact, they're just trying to line their coffers - and it makes me angry! 

Fifteen years ago, all credit cards had a MMR of at least 10% of the outstanding balance. So for example, if you owed £1,000 in a given month, you had to pay back at least £100. 

However, In recent years many providers have dropped these levels - and now the MMRs of many credit cards are just 2-3% of the total amount owed. 

By stretching your debt out over a longer period of time, a credit card company is trying to make sure it pockets even more in interest payments. And it's also encouraging you to stay in debt for years, or even decades. How irresponsible is that? 

In Will your debt last decades? Cliff D'Arcy outlines how, with an MMR of 2%, it could easily take over 30 years to pay off £2,000 of debt. Over this time, your interest bill ends up being way bigger than your original debt. 

Here at lovemoney.com, we believe a credit card customer must be obliged to pay at least 5% of his or her outstanding credit card debt each month. This would encourage us all to clear our card debt more cheaply and more quickly. 

We thought about calling for a 10% minimum but went for 5% so that users could have a bit of flexibility. 

It's time that card companies stopped deceiving customers on this issue. They're not acting in their best interests - they're milking us for everything we've got!