Card users - don't pay the minimum

Small is not always beautiful. As credit card pro- viders ask for less in the way of minimum monthly repayments on outstanding balances, borrowers might be tempted to think that the heat is off. However, the millions of consumers who only pay back what they have to are in danger of being saddled with hugely inflated debts.

The number of card firms asking for a minimum 3 per cent repayment each month has dropped significantly, reports financial analyst Moneyfacts. In 2001, some 70 per cent of providers insisted on 3 per cent or more, but less than a third do so today.

By lowering their demands, lenders can rake in hundreds of pounds more from lazy or struggling customers because the debt is prolonged.

Borrowers who can afford to pay even just a few pounds extra each month should do so as soon as possible, says Moneyfacts.

"If you're able to go just slightly above the minimum required, you may be surprised at the effect this has on your outstanding debt," says Andrew Hagger of Moneyfacts.

For example, take a borrower who has an outstanding £1,000 balance on a credit card with an annual percentage rate (APR) of 14.9. If he decides to pay back 2 per cent each month - the minimum required - it would take him 19 years and seven months to clear the balance and cost £1,116.01 in interest.

But choose to pay back 3 per cent each month instead and the debt is eradicated in 11 years and seven months at a cost of £545.33 in interest.

Repay 10 per cent each month and the debt is wiped out in less than a third of this time - with just £114 paid in interest.

Of course many people can't afford to make such payments, but the savings are worth whatever effort can be made.

"Extending debt and increasing the interest pay- able doesn't seem a respon- sible approach to lending, especially in the current climate of rising debts, defaults and arrears," adds Mr Hagger.

Meanwhile, banks and lenders continue to raise the interest rates charged on a number of their credit card products to try and recoup revenues lost following a clampdown on penalty fees by the Office of Fair Trading.

Some 19 providers have done so in the past 12 weeks across a wide variety of cards, says Moneyfacts.

One of the latest is Barclaycard: it has raised the APR on its Simplicity platinum card for customers who use the plastic to draw cash from an ATM. The increase is by 12.1 percentage points to 27.9.