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MONEY COMMENT
Is Your Card A Lifelong Debt?

By Cliff D'Arcy
November 11, 2003

At a recent workshop on financial fitness, I warned the audience about the damage that the reckless use of credit cards can do to their finances and, therefore, their life goals. During this session, someone asked me, "How long will it take me to pay off my credit card, if I make only the minimum monthly repayments?"

I explained that this was quite difficult to calculate, because interest rates and repayments vary from card to card, and there are at least 1,300 differently branded cards out there! In the past, I have created spreadsheets to solve particular examples, but these do not generate answers for each and every case.

However, I wanted to come up with a rough and ready answer, so I put my thinking cap on. Being one of the world's laziest mathematicians, I wanted to work out an easy way to do this – so simple that anyone could do the sums on an envelope in less than a minute. Here's what I came up with, based on a typical credit card debt of £1,600:

A. Write down your monthly minimum repayment (usually between 2% and 5% of your monthly balance). Let's call it 3% in this example.

B. Write down the monthly interest rate your card issuer charges (1.5% or more for many cards). We'll call it 1.5%.

C. Write down the monthly cost of all other charges, such as rip-off payment protection insurance. We'll use 0.7%.

Then subtract (B)+(C) from (A). In our example, that's 3 – (1.5 + 0.7) = 3 - 2.2 = 0.8%

Then simply look up your result in the following table:

```Answer          Approximate repayment period

0%              Forever, as you're not repaying your debt at all!
0.5%            Almost 44 years
1%              Around 23½ years