#25 Don't pay the MMR

by Jane Baker on 10 September 2009  |  1 comment
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Today's 'what not to do with money' advice is all about clearing your credit card debt.

Today's 'what not to do with money' advice is all about clearing your credit card debt as fast as you can.

#25 Don't pay the MMR

MMR stands for Minimum Monthly Repayment and, rather obviously, it's the absolute lowest amount your credit card provider will allow you to get away with paying.

The MMR is normally set at a ridiculous level. And when I say ridiculous I mean it's way, way too low. 2.25% of your balance is pretty common. But some cards are even worse, most notably Virgin which charges a teeny tiny 1%.

The MMR may be easily affordable, but don't be fooled into thinking your credit card company is actually doing you a favour here. They want you to pay the MMR, and nothing more, to make your debt as expensive as possible.

I'll single out Virgin here for having that ludicrous MMR, but the 1% minimum payment is actually less than the typical monthly interest rate of 1.44%. In other words, if you only pay the MMR, you won't actually be clearing any of your debt. You'll simply be repaying some of the interest.

In a nutshell, you won't ever clear your card if you carry on like this.