Could you answer this credit card quiz question? Most people can't
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.
