42 years to pay off 1 credit card !

[demoivre]

Frankly the OP's post is a case study in why the country is in the mess it is in. Irresponsible lending on both sides, no seeing the future or the bigger picture, a rush out of school to start earning the big dosh to spend spend spend... I could go on.

A prime example of why there should be no debt forgiveness in this country.

Irresponsible lending with the blessing of the Central bank, Regulator and Government, and irresponsible borrowing. The irresponsible lender gets bailed out and the irresponsible borrower gets brought to court to pay up ! Meanwhile the economy goes down the tubes largely because of the implosion of consumption expenditure as households service debt.

 

[orka]

It's not as bad as you think!Your minimum payment decreases every month so you will not pay 120 grand.If you keep up the 250 a month ,you should have it cleared in 5 years.

Quote Vandriver , 5 years is correct if all interest was frozen . 42 years sounds right if interest is left on to compound - I just think its astonishing that a ten grand debt can end up costing 123k ! (In process of freezing the interest so hopefully in 5years I can be free! ).

I don't need to be corrected,when what I originally posted was correct.You have entirely missed my point that your minimum payment decreases every month.I never mentioned freezing interest because the interest doesn't need to be frozen for you to pay off the cc in 5 years.If you take out a calculator,and divide your 10 k by 250 you get 40 months ie just over 3 years with no interest.

Vandriver, you are correct in pointing out that the minimum payment reduces so the amount paid back is never going to be anywhere near 120K but at minimum repayment amounts, it will take a very long time to pay off the debt. In theory, just paying the minimum amount each month means that the debt will NEVER be paid off – because you are paying off a % of a reducing amount. I suspect there might be a minimum minimum payment (maybe a flat €5 or €10 once the % minimum amount dips below this) which drives the calculation of a sensible(!), finite number of years to pay.
On a 9,500 outstanding balance, a 250 per month minimum payment is a charge of about 2.5% of the outstanding amount. Assuming a monthly interest rate of 1.5% (seems about standard for credit cards), each month the amount outstanding goes up by 1.5% and down by 2.5% - so the net paid off each month is only 1% (€95) of the amount outstanding that month. At that rate, it would be 69 months (almost 6 years) before half the original amount was paid off, 138 months (almost 12 years) before 75% was paid off and 229 months (just over 19 years) before 90% was paid off. Now the amounts will be much small at that stage: €950 outstanding, minimum payment about €24 and monthly interest of about €14 – but it will still theoretically be chugging away. And it is this that allows the credit card companies to put the scary long-term numbers up showing that you really should pay more than the minimum per month or you will owe them forever...

 

[AgathaC]

OP it appears that I picked up your question incorrectly, apologies, my reply probably seems naive.
I wish you all the best and hope that things improve for you.

 

[paulcoade]

Thanks again for all the feedback.
When I get a few minutes to go through it I will put up answers to more of your questions.

For now though Orka , I worked it out (calculated the interest on a reducing balance basis as each payment is made) and vandriver is absolutely right , it would take 4years 11 months to clear at a rate of 17%p.a. IF I kept paying €250 every month . The minimum payment calculation you made with percentages is brilliant and I will sit down and work it out for my own case as a cash amount and time scale calculation if I get a few minutes this week. This is how it would work out if I kept the payments at €250.
Balance €9500 rate 17% , repayments €250 p.m.
Year1 . Repayments €3000 , interest €1615 , Balance reduced by €1385= €8115
Year2 . Repayments €3000 , interest €1379 , Balance reduced by €1621= €6494
Year3 . Repayments €3000 , interest €1103 , Balance reduced by €1897= €4597
Year4 , Repayments €3000 , interest €781 , Balance reduced by €2219= €2378
Year5 , Repayments €3000 , interest €404 , Balance reduced by €2596= €-218

Thanks vandriver for pointing it out and helping me to see it more clearly.
Originally when I read the card statement I assumed , with compounding interest and the feeling I've had the last few years of paying and paying without seeing much decrease in balance , that it actually was true and it could take that long . I also assumed they meant the monthly required repayment but now I reckon they mean the reduced monthly payment that the debt management company have been passing on which is €127 .
I will be call them to try and find out more about these type of warnings and how they are calculated on their side.

 

[Bronte]

When I get a few minutes to go through it I will put up answers to more of your questions.

.
I will be call them to try and find out more about these type of warnings and how they are calculated on their side.

This is all very interesting but instead of finding out how they calculate interest wouldn't you be better off concentrating on paying down debt in the best way possible? Starting with the interest rates on your cards and your arrangement with the DMC.