Monday, June 22, 2009
Category:
Consolidation
Moneysupermarket.com has advised making larger repayments in order to pay off debts faster and more economically.
For example, a credit card holder who is only making the minimum repayment of 2 percent for 12 months, on a £1,000 balance at 16.9 percent APR, will incur interest charges of £151.74. In addition, their total balance will only be reduced to £920.60. However, if the same borrower were to make repayments of 5 percent for 12 months instead, their interest charges would come in at virtually £30 less and their total balance would be reduced by practically £400.
Better still, if the borrower in question was able to part with 10 percent per month, they would be completely free of the credit card debt in one year. By adopting this approach the borrower will only be subject to £79.16 in interest, which equates to almost half of the sum that would have been paid via minimal repayments.
Credit card expert at moneysupermarket.com, Peter Harrison, commented: "Most banks will allow you to set your direct debits at the minimum repayment amount or more, and if you opt to increase your repayment amounts you will reduce your debt and the interest paid significantly. Even if you are with one of the few lenders that won't allow you to set you direct debit higher than the minimum repayment, you can set up a standing order at a larger monthly amount. Borrowers can even step up payments on months where they have some extra cash."
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Homeowners that are currently faced with several, expensive credit card bills each month could consider consolidating these into just one, manageable monthly repayment. This could be achieved by means of a debt consolidation loan, which could put an end to juggling those existing, potentially confusing, repayments by tying them up into one place. A debt consolidation loan, one of many finance options, could even leave the borrower with lower monthly outgoings. However, when taking out a debt consolidation loan, it must be remembered that consolidating your debt may increase the amount you pay back overall and extend the repayment periods of your debts.
