Perils of overspending

super_mario_4

This has been breifly mentioned in a previous post, but ive just done a few more calculations and its scary stuff....



Mr X gets an credit card January 2006 and begins to overspend by £25 a week every week.

By the end off 2006, he has amassed £1200 of debt. However to service this debt he has to overspend by a further £160 over the course of the year taking his total debt to £1360. Then there is a further 15% interest to take into account which takes the total debt at the end of year one to £1564.

If he then carrys on overspending by £100 a month, paying 2% of the balance each month and paying 14.9% interest, this is how much his debt will APPROXIMATELY increase by.......

2007 - £1564
2008 - £3600
2009 - £6515
2010 - £10700
2011 - £16600
2012 - £25000
2013 - £37000
2014 - £54000
2015 - £78000
2016 - £112700
2017 - £162000

tomstickland

I've been thinking about this.
A credit card company knows that there is a spectrum of customers. At one extreme you have those who spend it all but then can't pay it back ie: very high risk. Then you have those who spend too much but can almost pay it back but will have to be chased via debt payment companies. Then you get into the profitable mid ground. They want customers who can just afford to make the repayments, but only just, so it takes a long long time to pay back. Even the quicker payers who just spend a few months longer than planned will be a reward for the credit card. And then there's people who use 0% credit and then move the card as as soon as it ceases to be 0%.