The perils of paying the bare minimum on your credit card are being reinforced as the worsening economy threatens the job security that has given consumers the confidence to buy now and pay later - sometimes much later.

Job cuts, reduced hours and overtime bans may mean that, for some people, the temptation will be even greater than usual to pay just the $20 or $30 required to stay out of default each month.

But the bottom line is the true cost will be many additional years in debt and potentially tens of thousands of dollars in interest paid, if they continue to make just the minimum payment.

"A credit card is your most expensive debt and it's the debt you should pay off first," says Delia Rickard, senior executive leader for consumers with the Australian Securities and Investments Commission.

"You're just giving money to the banks if you only pay the minimum. Of course, there may be times when you can only afford the minimum but if you possibly can you should repay more."

Christopher Zinn, of consumer group Choice, says: "The minimum repayment is in the bank's interest; the maximum repayment is in yours."

Minimum repayment levels vary from card to card but are usually 2 per cent (down from a standard 3 per cent or 4 per cent a few years ago).

For those paying only the required minimum, the percentage set by the lender can make a big difference, along with the interest rate (see table).

Researcher InfoChoice looked at the scenario of someone with $10,000 on a card, at the prevailing RBA indicator rate of 18.95 per cent, who was required to meet a minimum of just 1.5 per cent. If the cardholder only ever paid the monthly minimum, it would take more than 90 years to erase the debt, at a cost of $269,148 in total interest.

Fortunately, the Macquarie Bank card that sits at this end of the scale is a low-rate card, charging 11.95 per cent for purchases (though 18.95 per cent for cash advances and with a $50 annual fee). With this card, it would take 40 years to clear the debt at the cost of $20,498 in interest. In these examples, further purchases or cash advances would only worsen the outcome.

At the other end of the spectrum is a card like the Victoria Teachers Credit Union Visa Card, which requires a 5 per cent minimum repayment and has no annual fee. In this case the debt would be repaid in seven years and nine months, at the cost of $2612 in interest. And that's even though its purchase rate is higher at 12.74 per cent.

Pay more than the required minimum - whatever percentage it is - and you'll see a big difference, too.

Looking at the common scenario of a 2 per cent minimum repayment on a full-rate card (see table), paying $200 every month instead of the required minimum reduces the time to pay off the debt from nearly 54 years to about 8 1/2 years, saving about $25,000 in interest in the process.

In this case, the exercise underlines the cost of paying the minimum and the savings to be had by paying as much as you can each month.

For others, the scenario may come too close to home this year, when the official forecast is for unemployment to rise to 7.5 per cent.

The chief executive of Dun & Bradstreet Australia, Christine Christian, says the debt collector is already seeing "a significant increase" in referrals from banks - a 40 per cent rise over the past 12 months. She acknowledges the average credit card balance has come down since the start of the financial crisis but is concerned at the appetite for debt among young adults.

The latest D&B Consumer Credit Expectations Survey found that a third of 18- to 34-year-olds plan to apply for new or increased credit in the March quarter.

"That's OK when you've got a job but people will find themselves in a situation where they become unemployed with big credit card and mortgage obligations," she says.

The president of the Insolvency Practitioners Association, Paul Cook, says credit cards are a significant factor in personal insolvency.

"You'll find multiple credit cards involved in all bankruptcies," he says.

InfoChoice chief executive Shaun Cornelius says if you find you can't pay the full balance you should use a low-rate or "basic" card and pay off as much as possible each month. Forget about features such as rewards points and seek out a card with a rate of about 10 to 12 per cent, with no annual fee or at least one below $60.

The table, right, of balance transfer deals shows cards that will help you clear a big balance providing you are disciplined.

Cornelius says deals can be helpful if you're trying to make inroads into your debt but you must read the fine print. Use these cards as a way to attack debt, not for additional purchases, he says.

That's because additional purchases may not be at the honeymoon rate and repayments will be applied last to that more expensive debt.

Also, with these deals new purchases may attract interest from the day of purchase, rather than qualifying for the 55-day interest-free period. In order to make the most of the card it is important to use it solely to pay down debt.

If the reality is you can't afford more than the minimum repayment, Cornelius suggests "fixing" your minimum, even as the official figure reduces in line with your reducing balance.

If you can pay the required minimum of $50 one month, keep paying $50 in subsequent months even as the required payment falls. That way you're paying more of the capital off each month.

For calculators go to: bankers.asn.au/sc/default.html; and fido.gov.au.

Health warning

CONCERN that some consumers misunderstood the role of the minimum repayment prompted the insertion of a "health warning" on credit card statements in Britain some years ago. A similar measure has just been approved in the US.

Sandra Quinn, a spokeswoman for the UK Payments Association, says there was "some evidence that some cardholders didn't understand why a minimum payment existed and may think that it was a recommended level of repayment".

In December, the US Federal Reserve Board approved new rules to be phased in over the next 18 months, including a minimum repayment warning.

Carolyn Bond, joint chief executive of Victoria's Consumer Action Law Centre, would like to see higher minimum repayment levels here.

"If you reduce the minimum repayment, you can lend people more," Bond says. Lenders can say they've established the ability to pay, "but if it's going to take 15 years to pay off at the minimum, that's not really being able to afford it", she says. Low minimum repayment levels also keep problems hidden, she says.

However, Ian Gilbert, the director of the Australian Bankers' Association, warns upping minimum repayment levels could push some people into hardship.

Reserve Bank statistics show about $32 billion of the $45 billion in credit card debt is accruing interest.

Cycle of debt

Six credit cards plus an international holiday left Natalie Stebbings with a debt of about $38,000.

"I lost my mum a couple of years ago and I thought 'life's too short' and I went on an overseas trip," the receptionist says. "I spent up big."

Now she's paying $1100 a month off her cards, which is slightly more than the minimum repayments required.

"I always try to pay a little bit more to get it down a bit quicker," she says and expects it will take her about six years to clear the debt.

Has she cut up the cards? "No." Does she think she should?

"Very definitely."

Stebbings has sought to consolidate the card debt in a personal loan at a lower rate but hasn't found a lender prepared to take her on.

She has been told she'd need to provide security against a loan above about $15,000 and she doesn't own property or a car.

Long way back

JENNY and Chris Ford decided about a year ago to pay off all their credit card debt after it hit $40,000.

"We want to build wealth and the level of interest you pay on consumer debt and the fact that it's not tax-deductible means you just end up going backwards," Jenny says.

The family used four cards for everything from groceries to training courses and travel.

"We were getting frequent-flyer points but we wouldn't actually be aware of how much it was adding up to until the bill came in," Jenny says.

She says they could not always pay the whole bill.

Jenny and Chris have now paid off all but one of the cards.

Their strategy was to first target the card with the highest interest rate, paying the minimum on the others in the meantime.

"When that was paid off, we went to the next-highest and so on," Jenny says.

The remaining card is one they picked up because of the low 6 per cent rate on offer for switching to that lender.

Jenny, who runs the website Cash-Smart Kids, says she's aware of the traps with such "honeymoon" deals so this last card is rarely used (see main story).

"All the credit card companies set these things up to get people to fall back," she says.

Marketing ploy

A British university study has found minimum repayment amounts on credit card bills act as a deterrent to higher repayments.

The research by University of Warwick psychology researcher Neil Stewart concluded that a suggested minimum acted as an "anchor" for people making partial repayments.

Dr Stewart conducted an experiment where one group received mock credit card bills with a suggested minimum repayment while a second group received bills with no minimum figure. The bills all had the same balance.

Everyone was asked to decide how much they could afford to pay. In each group, the proportion who said they would pay the full amount was the same, at 55 per cent.

But there was a big difference among the "partial payers". On average, those with no suggested minimum decided they could pay 40 per cent of the bill, while those with a minimum figure on the statement thought they could pay only 23 per cent of the bill.

That doesn't surprise Victoria's Consumer Action Law Centre, which last year released a report looking at ways credit providers used psychology on customers.