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[MSE Guy]

This thread is to discuss the following news story:

Barclaycard borrowers could see debt last for decades

[IWantToBeFree]

I don't see the issue with this, if people are stupid enough to not realise that by only paying the minimum payment they will spend ages paying off the debt then thats their own fault!

[_Andy_]

We've seen on this forum time and time again that the lenders just can't win - if they make the minimum payment higher, people complain that they're too harsh etc... if it's reduced then of course the lender is 'taking advantage' etc.

I don't see the problem - if people feel the new payment is too small then just pay extra. But of course that would mean (shock) taking some responsibility.

[nzseries1]

It's another case of if banks lower the minimum payment, they are accused of prolonging people's debt. They raise the minimum payment, then people complain they can't afford it.

Banks just can't win.

They already state "If you pay only the minimum payment, it will take longer and cost more to clear your debt" or words to that effect. What more do people expect?

As a responsible borrower, I think a lower minimum payment is BETTER because that allows me to budget how I want. Good on you Barclaycard.

EDIT: Andy, posted the same thing at the same time :-) glad I'm not alone!

[PROLIANT]

What Andy and nzseries1 said...

[ILW]

I cannot see that this is bad news. People can choose how much they want to pay each month.
I get the impression that some of the people that run this forum (Guy?) have an attitude that anything the banks do is automatically wrong. This tends to muddy the waters about true wrong doing and I think a little more balance should be shown.

[MSE Dan]

Hi folks,

Just reading this interesting discussion, and wanted to reiterate the MSE standpoint on this.

We have always thought that Minimum repayments as a mechanism are a bad thing, as they are designed to keep cardholders perpetually in debt, and have a longstanding MSE guide - http://www.moneysavingexpert.com/car...ts-credit-card - encouraging anyone with debts on a card to look at their payment and pay more than the minimum if possible.

We've never campaigned for lower, or higher minimum payments, as we believe the whole system is a bad one.

However, some cardholders do only pay the minimum, and this change by Barclaycard will hit some of them. The point of the news story is to make people aware, and point out the potential cost.

We take everything the banks do on each measure's individual merit, and appreciate that some forumites will agree and some will disagree; that's the great thing about the forum!

Dan

[ILW]

Originally Posted by MSE Dan

Hi folks,

Just reading this interesting discussion, and wanted to reiterate the MSE standpoint on this.

We have always thought that Minimum repayments as a mechanism are a bad thing, as they are designed to keep cardholders perpetually in debt, and have a longstanding MSE guide - http://www.moneysavingexpert.com/car...ts-credit-card - encouraging anyone with debts on a card to look at their payment and pay more than the minimum if possible.

We've never campaigned for lower, or higher minimum payments, as we believe the whole system is a bad one.

However, some cardholders do only pay the minimum, and this change by Barclaycard will hit some of them. The point of the news story is to make people aware, and point out the potential cost.

We take everything the banks do on each measure's individual merit, and appreciate that some forumites will agree and some will disagree; that's the great thing about the forum!

Dan

Sorry Dan, but you seem to have made a rather odd statement that "minimum payments as a mechanism are a bad thing". They are purely voluntary so this does not seem to make a lot of sense. Would you prefer maximum payments?

[MSE Dan]

Hi ILW,

Sorry maybe that wasn't very clear; I mean setting the MMR as a percentage, so that it decreases in actual amount each month, keeping you in debt for longer, is a bad thing. Paying off a fixed amount that you can afford costs far less over the life of the balance.

Dan

[td_007]

I would second Dan's statement "minimum payments as a mechanism are a bad thing". Minimum payments provides that psychological crutch to people thinking "I need to pay only this much this month" and ignore that the fact they will pay a lot more over a long period time. If minimum payments were increased to to say 20-30% or even more of the outstanding amount people will stop and think how will I pay it back? It is much easier to pay back £5 rather than £30 on a £100 spend. While there will be a subset of people with genuine difficulties, there are a lot who refuse to take responsibility for their overspending and cling on to min repayments - no wonder UK is in a debt black hole.

[ILW]

Maybe set higher percentage minimum payments for people with a poor credit history. I dont see why the majority should suffer for the idiocy of the minority.

[mitrant]

Personally, I feel that this move by Barclaycard isn't necessarily too different from any lender that uses a minimum payment scheme. All minimum payments are designed to keep customers in debt simply because the lenders know they can exploit the lack of knowledge the average joe has regarding credit. I've encountered multiple people who are so ignorant as to how their credit cards or store cards work they honestly believe that paying the minimum payment on an item they've bought is a good thing - completely unaware of how much interest they'll rack up in the mean time... and the amount of people who don't understand the terms of credit agreements is phenomenal.

What we on this forum might consider basic knowledge is something that a large number of people are completely oblivious too... and there are a lot of people who believe that having their income eaten up by credit payments is a normal way of life because they simply don't understand what their debts are costing them in the long run.

[ILW]

Originally Posted by mitrant

Personally, I feel that this move by Barclaycard isn't necessarily too different from any lender that uses a minimum payment scheme. All minimum payments are designed to keep customers in debt simply because the lenders know they can exploit the lack of knowledge the average joe has regarding credit. I've encountered multiple people who are so ignorant as to how their credit cards or store cards work they honestly believe that paying the minimum payment on an item they've bought is a good thing - completely unaware of how much interest they'll rack up in the mean time... and the amount of people who don't understand the terms of credit agreements is phenomenal.

What we on this forum might consider basic knowledge is something that a large number of people are completely oblivious too... and there are a lot of people who believe that having their income eaten up by credit payments is a normal way of life because they simply don't understand what their debts are costing them in the long run.

Or maybe an intelligence test as pert of the application form.

[CLAPTON]

Originally Posted by MSE Dan

Hi ILW,

Sorry maybe that wasn't very clear; I mean setting the MMR as a percentage, so that it decreases in actual amount each month, keeping you in debt for longer, is a bad thing. Paying off a fixed amount that you can afford costs far less over the life of the balance.

Dan

presumably you mean paying a fixed amount or a fixed percentage whatever is the greater.

[mitrant]

Originally Posted by ILW

Or maybe an intelligence test as pert of the application form.

Personally, I've often thought that basic areas of "adult life" should be taught in secondary schools. Managing credit arrangements and the like could easily be incorporated into maths classes... but instead they choose to teach us stuff about when trains are going to pass each other... like I'm James Bond and need to know that...

[MSE Dan]

Originally Posted by CLAPTON

presumably you mean paying a fixed amount or a fixed percentage whatever is the greater.

Hi Clapton,

I mean a fixed amount eg. £50, is often better than a percentage eg. 2% of outstanding debt.

The first will stay the same, and pay the debt off quicker; the second will decrease as the debt decreases, costing way more in the long run.

Dan

[CLAPTON]

Originally Posted by MSE Dan

Hi Clapton,

I mean a fixed amount eg. £50, is often better than a percentage eg. 2% of outstanding debt.

The first will stay the same, and pay the debt off quicker; the second will decrease as the debt decreases, costing way more in the long run.

Dan

A fixed amount may of course be LESS than a percentaage .. it depends upon how much the balance.
e.g. if the balance is 10,000 then 2% of that is £200 but if you were paying only £50 that probably wouldn't even pay the monthly interest and the debt would actually be increasing.
So paying a fixed amount could be a disaster.

[Katy_M]

Hi all

I am a Barclaycard customer and I am pleased about this really.

As others have mentioned - Barclaycard clearly state on their statements and website that only paying the minimum monthly payment will mean it takes much longer to pay the debt off.

I have just moved into a new flat so the next couple of months are going to be tight. So it is handy for me to be able to pay of a smaller amount until I have more available funds and am in a situation where I can start paying off large chunks again.

I think it will help people to be able to budget better in these hard times, but there are always going to be people who don't handle their debts responsibily. Barclycard cannot be blamed for people's ignorance IMO.

[MSE Dan]

Originally Posted by CLAPTON

A fixed amount may of course be LESS than a percentaage .. it depends upon how much the balance.
e.g. if the balance is 10,000 then 2% of that is £200 but if you were paying only £50 that probably wouldn't even pay the monthly interest and the debt would actually be increasing.
So paying a fixed amount could be a disaster.

Yep that's right - the fixed payment should always cover at least the interest in the first month - we hadn't mentioned the size of any balance above.

In the full minimum payments guide, our general guidance is, if you can afford the minimum payment of, say, £75 in month 1, then instead of signing up to pay the Minimum, making a fixed payment of £75 (which you can afford), is a very sensible course to sail.

Dan

[Katy_M]

Originally Posted by mitrant

Personally, I've often thought that basic areas of "adult life" should be taught in secondary schools. Managing credit arrangements and the like could easily be incorporated into maths classes... but instead they choose to teach us stuff about when trains are going to pass each other... like I'm James Bond and need to know that...

I have said this to many people in the past. I'm 27 and I've only just got the hang of it all really....wish I knew 5 years ago and I would have no loan now and a mortgage on a lovely thatched cottage in the country and so on. I'm sure of it!