Minimum repayments 'could encourage debt'

The presence of a suggested minimum repayment on a credit card statement may encourage people to pay off less of their balance than they could, it has been found.

According to research by Dr Neil Stewart of the University of Warwick, such amounts encourage people who are only paying off part of their debt each time to pay off less than they can afford, which could lead to higher interest charges.

In turn, this is likely to lengthen the amount of time that they spend in debt to credit card companies unnecessarily.

"Those paying off the balance in full each month seem to be immune, but anyone repaying only part of the debt is at risk," Dr Stewart remarked.

He added that helping people to understand interest charges and repayments could provide a lifeline to anyone struggling with debt or tempted to simply pay off a small amount each month.

In related news, according to a recent survey by moneysupermarket.com, a large proportion of people who take out debt consolidation loans go on to borrow more money in what is becoming a vicious circle of debt for many Britons.

Fairinvestment.co.uk found that average consumer borrowing now stands at £5,886 per person, whereas figures from Credit Action showed it was only £4,524 at the end of August last year.