If you had a £1,000 balance on a typical credit card with an 18.9% APR, and paid a minimum monthly payment of 2.5%, how long would it take you to pay it off?
(a) 5 years, (b) 9 years, (c) 19 years, (d) 29 years, (e) I don't know
If you're struggling this one, then you're not alone, because when commercial debt firm, The Debt Advisory Centre, asked 1,300 people the question, only one in five got it right. By far the most popular answer was 'I don't know' - picked by more than a third of people.
Just a fifth of people knew it would take nine years to repay the balance (a quarter picked either 19 years or 20 years).
The organisation highlighted that this is particularly alarming, because some 10% of all people with credit cards only ever manage to make the minimum repayments every month, and a quarter of all credit card users don't manage to clear their balance each time.
It means that there's a good chance that thousands of people are racking up major debts, paying them off as slowly as possible, and are completely in the dark about when they will be debt-free. It's hardy surprising that one in five men and one in three women are stressed about their credit card debt.
What can you do?
The good news is that in the vast majority of cases, there are some simple steps you can take to get yourself back on track.
1. Work out where you stand
This means working out how much you owe, and what interest you are paying on it. You can then use an online calculator to see how long it will take to repay at your current rate.
2. Consider how you can improve your situation
If you are on track to clear your debts, but are paying a high rate of interest on them, you can consider switching to a card with a lower rate of interest - or even 0% - on the understanding that this is not an excuse to build up more debt.
If you aren't paying things back fast enough, revisit your monthly budget and work out where you can trim costs in order to free up enough cash to pay your debts off faster.
If things have got to a stage where you cannot see the light at the end of the tunnel, or where you are struggling even to meet the minimum repayments, it may make sense to speak to someone at a debt charity like Stepchange.
3. Stick with your plan
There's no point making a plan unless you have the discipline to stick with it, or you will simply end up building up more debt and getting deeper into trouble.
You also need to make sure you make every payment on time, so set up a direct debit, to make sure you never have any late fees added to your account.
How to dispute your credit record
Could you answer this credit card quiz question? Most people can't
Don't wait until you need to apply for credit to view your credit record – do it now so you know where you stand and can deal with any disputes. When applying for credit, you give the lender permission to view your record, so it makes sense to view it yourself first.
You can access your record via any of the main credit agencies in the UK. By law, all the credit agencies are required to provide you with a one-off copy for just £2 so don't be hoodwinked into signing up to pay a monthly fee.
Your report shows what credit accounts you've had and whether you've made repayments on time and in full. According to Experian, items such as missed or late payments stay on your credit report for at least three years, while Court Judgments for non-payment of debts, Bankruptcies and Individual Voluntary Arrangements stick around for around six years.
Your credit report shows the current address at which you are registered to vote as well as details of other addresses you've been linked to in the last six years. Another section lists people you have a financial connection with, such as a joint mortgage. When you apply for credit, lenders are able to look at their credit history as their circumstances could affect your ability to repay what you owe.
Scrutinise your record to make sure there are no mistakes. Even a minor error such as an incorrect address or wrongly linked account could hinder your chances of being approved for credit so make sure all your details are correct and that all your borrowings are on record. If there is a discrepancy, contact the three main credit agencies to get it corrected.
A default notice is note that a lender puts on your credit file if you fall behind with your payments. It is a warning sign to future lenders about your reliability to repay credit and could mean that they will be less likely to lend to you or will increase the interest rate.
If the default notice is incorrect, perhaps because you have repaid the loan in full or did not take out the credit and suspect that you have fallen victim to fraud, you can apply to have a default notice removed. A default notices will only be removed if it is factually incorrect – not simply because you are embarrassed by it.
Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.
Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.
You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.
If you are unhappy with the response or would just like to explain a missed payment on your file you can send a Notice of Correction. This is a statement of up to 200 words that will be added to your file. Although lenders don't have to take this information into account, it at least gives you the chance to tell your side of the story.
Experian states that agencies will also help you escalate the dispute to a third party arbitrator if necessary, such as the Information Commissioner's Office.