Pay my minimum payment, overall debt INCREASES?!?

Peppers

Hi.

I have a Barclaycard Initial Visa, on which I have approximately £442 debt. I have a DD set up to pay off the minimum payment each month (since I am terrible at remembering these things!).

Last couple of months, I've been noticing something that has to be illegal. I'll put down some figures to help explain things a little better....

• On 4 July, I owe Barclaycard £441.00.
• My DD takes the £11 minimum payment from my current account.
• 4 days later, Barclaycard charge me £3.47 "Payment Protection Plan", plus a further £9.11 SB interest.
• I now owe Barclaycard £442.58.

In summary therefore, it has cost me £11 to increase the amount of money I OWE Barclaycard by £1. :mad:

Have they (or indeed I) made a mistake? Or is this normal? I was under the impression that the whole idea of the minimum payment was that it would be sufficient to pay the card off - albeit in 500 years!

If anyone can shed some light on this, that would be fantastic.

(on a side note - when I first got the credit card, I was between addresses, and relying on family to forward mail to me. Since my first statement reached me whilst I was still in the USA, and didn't recieve the bill until it was too late, I missed the first payment, and was lumped with a HUGE charge which ended up with my credit rating plumetting and my limit being HALVED - do I have any grounds to be able to claim this back? I'm not sure of the exact amount, looking at my statements just makes me feel a whole lot worse inside!)

NickX

This is correct I'm afraid.

Your Minimum Payment is based on 2.5% of the Balance.

The interest is being charged at around 2.065% per month.

So the interest is less than the Minimum Payment (just) but its the "Payment Protection Plan" insurance payment that is knocking the balance up. Do you really need this ? In many cases it is not necessary and is actually just a waste of money. If you do need it, then I suggest you pay a little more than the minimum to cover this premium aswell.

With regard to the late payment fee, you may be able to reclaim some of these charges if they were over the £12 limit which the courts imposed on the credit card companies. Unfortunately there is not much that can be done about the reduced limit and credit rating.

Sorry its not good news really.

AceCobra1

I thought minimum payments are 3% of the balance?

kelloggs36

Each card differs, you need to check it.

NickX

kelloggs36 wrote: »

Each card differs, you need to check it.

That is right, my own Barclaycard is 2.25%, this poster's appears to be 2.5%.

You would need to check the specific Terms & Conditions.

[Deleted User]

It's completely right, I'm afraid.

Here's an example - the figures are all wrong but it'll give you an idea.

Let's say you owe £1000, and your minimum payment is 1% of your balance (£10).

You pay the minimum £10. If there were no charges you'd now owe £990.

HOWEVER - there's interest. If your interest rate was 24% APR, you'd be paying £20 interest (2% of the £1000).

So, you've been charged £20, and paid £10. You now owe £1010. Next month, go back to the beginning, and it'll keep going up.

It'll go up even faster with that Payment Insurance ontop too, because your minimum payment pays off the insurance before it pays the interest...

NickX

billbennett wrote: »

It'll go up even faster with that Payment Insurance ontop too

If the OP didn't have the Payment Protection Insurance, then the balance would actually decrease, albeit very slowly.

YorkshireBoy

Lenders are starting to address this particular issue now.

For example, the Halifax Standard Card (27.9% APR) now demands 5% minimum payments. Their other 'mainstream' cards demand a minimum payment of 2.25% when your personal interest rate is 26.75% APR or higher.

Staciep88

Yes that is correct, sad but true unfortunatly. I think that you should look into cancelling your p.p insurance as for the sake of £441.00 its not really worth it (aslong as your in a position to od this of course) you could even look into claiming back the p.p Insurance if you havent claimed on it. As said above if you werent to have the p.p.i by paying the min payment each month the balance would slowly come down. Hope that helped

trader_girl

There is only one answer. pay it off as soon as possible and cut it up then ask the bank for a debit card on your bank account instead. With a debit card you can only spend whats in that account so you always know exactly how much money you have got.

Yesterday Lloyds tried to get me to have a credit card when i told the girl i only pay cash or go without she said oh' your just like my gran!!!!!

Cheeky bint. however, that does mean that both her gran and me actuallyt own everything we possess and are not paying someone else to spend our own money to buy it.

She didnt know what to say to that....

NickX

trader_girl wrote: »

however, that does mean that both her gran and me actuallyt own everything we possess and are not paying someone else to spend our own money to buy it.

I know a lot of people have this opinion, and my own grandparents would have been of exactly the same view.

However, it is not a view that I hold. Managed effectively Credit Cards are an excellent facility to have in modern life. For example :

(a) Just using a Credit Card in the normal fashion, time your purchases well and you can benefit from up to 56days interest free, that is nearly 2 months before you need to pay for them.

(b) Use a cashback card and receive up to 5% discount on purchases that you would have had to pay full price on otherwise.

(c) Get a 0% promotion and use the "stoozing" tricks to invest that money in ISA's or high interest savings accounts and earn interest on the Card Companies money.

(d) These days it can be virtually impossible to book hotels and car hire without credit cards because of the deposits required.

(e) Using Credit Cards to make purchases gives you much more protection than Debit Cards if the transaction goes wrong (under Section 75)

I appreciate that if they are not managed effectively then they can get people into debt, but then the same can be said of any form of borrowing - loans, overdraft, mortgages etc.