Why it can take 22 years to pay off your credit card

David Cameron this afternoon said households were paying off their personal debts to help Britain recover from what is "no normal recession", but for those who opt for the minimum repayment, it could be 2033 before they clear their balances.

Credit card debts take decades to clear 

The Prime Minister told delegates at the Conservative Party conference today that the country has been suffering from a debt crisis and "that's why households are paying down their credit card and store card bills".

It certainly makes sense to pay down your debts if you are in a position to do so. Figures from Moneynet.co.uk have revealed that should consumers with a credit card balance of £2,000, who repay just the bare minimum amount each month, 22 years to clear the balance of just £2,000 – paying an extra £2,275 in interest in doing so.

If a borrower with a £2,000 debt makes monthly repayments of £50 it will still take in four year and 11 months to pay down the debt, at an interest cost of £939.

It would take 28 years and three months to repay a £5,000 card debt repaying the minimum each month. You would pay £5,912 in interest.

According to figures from the Bank of England, consumers have racked up a £57bn bill from credit cards but increased competition in the market will give many borrowers time.

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A balance transfer war has broken out and some card providers allow people to transfer existing debts and pay 0pc for up to 22 months, subject to a small handling fee. Once this period is up you need to repay the debt or transfer it again – otherwise you risk paying a high interest rate.

Michelle Slade at Moneyfacts said that assuming you can pay the debt off within the introductory period, moving the debt to a interest-free balance transfer card is a useful option. "If customers do this then they have to be disciplined and repay as much as possible each month. If they don't, then the interest could soon start stacking up again one the introductory deal ends."

The best long-term interest-free deals come from Barclaycard Platinum, which charges 0pc for 22 months with a 2.90pc balance transfer fee. Similarly, Halifax's BT MasterCard, is also interest free for 22 months, but charges a 3.5pc fee on transfers while Virgin Money has an interest-free period of 20 months and charges a fee of 2.99pc.

Personal loans are also a good method for debt consolidation as they offer a structured repayment plan. With this option, borrowers know exactly what they will have to repay each month and when they will be debt free – assuming they do not take out further borrowing.

Since the start of the year the personal loan market has been highly competitive, particularly on the £7,500 to £15,000 tier. The increased competitiveness has seen rates on some tiers tumble back to the levels saw before the credit crisis.

Depending on the size of your loan, rates may vary. If you are looking for a loan of £2,500, the best rate comes from the Post Office and charges 14.9pc. Sainsbury's Finance charges 7.9pc for a loan of £5,000 while HSBC, Marks & Spencer Money and Nationwide Building Society all charge 6.4pc APR for a £10,000 advance.

Andrew Hagger, spokesman from Moneynet.co.uk, highlighted that those who go down this route should ensure they close down the credit card accounts that are being repaid with the new loan – otherwise they start spending on them again and fall further into debt.

However, Ms Slade, pointed out that lenders are very strict about who they will offer a personal loan and those without a good credit record are unlikely to be accepted.

She said: "Lenders will look at how much existing debt someone has and may not offer a loan if its is already too high. A debt consolidation loan is only likely to be offered to someone with a small amount of debt, who has not had any previous repayment problems. Anyone else is likely to be declined by traditional lenders."