$20k repaid on $12k credit card balance

A man who paid $20,000 towards a credit card debt of $12,000 and was left with $6000 still owing has had his debt written off.

The man complained to Financial Services Complaints (FSCL), a dispute resolution scheme for financial services.

He received his credit card in 2013 and generally had a balance close to its limit. Over the years, he made purchases totalling $12,000, FSCL said.

He usually paid the minimum monthly credit card payment, and did not clear the balance. There was also a period when he was experiencing hardship and made reduced payments.

In 2021, he stopped repayments completely, still owing $6000. He then complained to the lender, saying he had paid $20,000 towards his credit card bill over the years and could not understand why there was $6000 remaining.

The lender offered to write off the balance on the account but the borrower still believed he had overpaid, so took his complaint to FSCL.

FSCL said the lender’s offer was reasonable. He had been charged $1800 in fees since he took out the card and $11,700 had been charged in interest over the years.

‘‘Although that seemed to be a high amount of interest charged on $12,000 of purchases, we pointed out to [the borrower] that we could see how that high figure had been reached. This was because there was a period where [he] was in financial hardship and reduced his payments, and he’d also stopped paying his credit card in early 2021. During both those periods the balance increased, and interest continued to accrue.

‘‘The biggest influencer on the high amount of interest was that [he] had sat close to the credit limit for most of the time he’d had the credit card. If only minimum payments are made, and there’s an interest rate of 25.25 per cent per annum, the total interest charged over the years will be high. In offering to write off the balance of [the] debt, the lender was essentially agreeing to write off half the interest that had been charged over the years.’’

FSCL chief executive Susan Taylor said people often underestimated the effect of paying only the minimum required on their credit cards. The compounding effects of high interest rates could mean people made little progress towards reducing their debt, she said.

She said her scheme did not deal with many credit card complaints because most were offered by the banks, which are part of the Banking Ombudsman complaint scheme. But similar lack of awareness of how interest could add up could be seen in other financial products.

‘‘We could see how that high figure had been reached.’’ Financial Services Complaints