Credit Card APR

[scotchpie]

Friend pays minimum payment each month on balance of approx £11,500, last months payment was £350 and out of that £257 was interest. Surely that cannot be right? Big card company too.

DH pays outs off each month so words of advice from me.

Anyone help?

Yes, that can be right. Typical APR for a credit card is 18%, so as a rough calculation, £11.5k at 18% is £2,070 per year, so divided by 12 is £172.50 per month.

It probably is right. What interest rate is she paying?

With a big balance like that, it is common for most of the minimum payment to be interest, that is why it is never advisable to only pay the minimum, always pay more if you can otherwise you it will take decades to pay it off.

If she's got an expensive credit card, the interest can easily be double.

APR is 18.9, looks
Like it will take her forever to pay off at this rate!

Thanks everyone

Is it spending she has been doing on it, or taking cash out as well? Because cash will normally have a higher rate of interest, and when you pay off a credit card, some of them will take the payments away from the lower interest bearing part of the balance first.

I think just spending

In which case £257 does seem a lot. Should be less than £200 just for the interest

She just said she got currency too, does that counts as cash advance?

Yes, currency would count as a cash advance. Plus there would be associated fees as well.

Yes currency counts as cash.

If she can, it might be worth looking into transferring to a new card that offers a 0% balance transfer. There is usually a fee to transfer the money to a different card but it will be less than the interest she is paying.

Ill suggest a balance transfer. Thank you

If she is paying the minimum, it will take her around 18 years to clear the bill

if she uses the standing order trick (see the spreadsheets thread)
that drops to two years
without her paying any more than she did this month

That balance and that payment will take quite a bit longer than 2 years to pay off, probably more like 4, but yes, the friend needs to try and balance transfer to a zero interest one (look on moneysavingexpert to check which she will be eligible for) and prioritise paying it off, or else it will cost thousands in interest.

Sounds like she needs to review her budget and cut back elsewhere to pay it off as quickly as possible. If she is using the credit card to pay basic household expenses, rather than paying for discretionary expences, she might need more formal debt management advice.

That balance and that payment will take quite a bit longer than 2 years to pay off,
Nope.
The standing order trick is not dependent on the starting balance, only on the interest rate on the card.
Check out the spreadsheet to see how.