Credit card users are paying more if they don’t pay off their bills in full, as the average interest rate hit 23.1 percent, its highest level in 28 years.
The most recent data from the Bank of England shows that the typical interest rate on listed credit cards has not been higher since December 1995, according to an analysis by broker Freedom Finance.
But for many borrowers their number could be even higher.
Alternative figures from financial data firm MoneyFacts show that the average interest rate on credit cards is 31.2 percent, and many cards charge much more than this.
Most credit cards only charge interest if you can’t pay off the balance within the same month.
Here’s how to make sure you get a good deal on your credit card.
Sharp Card: Credit card users are hit with ever-higher interest rates
Why are credit card rates going up?
These rates are affected by the Bank of England base rate, which is a factor in how banks value financial deals like loans and mortgages.
The Bank has been making steady increases to its base rate, which is now 5 percent, up from 0.1 percent in December 2021.
The theory is that this will help reduce runaway inflation, currently at 8.7 percent.
The same trend of rising rates can be seen with personal loans, although these costs are lower than credit cards.
The interest rate on a typical £10,000 loan increased from 5.85 percent in May to 6.02 percent in June, the highest rate since October 2013.
For loans of £5,000, the average interest rate increased from 10.15 percent in May to 10.18 percent in June.
But not all applicants get these rates, and many end up paying much more.
Andrew Fisher, director of growth at Freedom Finance, said: “After a period of lull, it appears that consumer credit rates are now back on an upward trajectory with credit cards reaching their highest levels in nearly 30 years.” .
‘While personal loan rates have risen slightly, they still offer borrowers the ability to access the credit market at more attractive rates. It could lead to increased demand for personal loans as borrowers search for products to support their financial situation amid tight family budgets.’
How to get a better credit card offer
Credit cards come in all shapes and sizes, and the best deal for you will vary depending on what you want.
For example, some customers choose credit cards that pay cash back, while others may prefer cards that award airline miles.
However, for most credit card customers, a good deal comes down to one thing: rate. And there is no rate below 0 percent.
0 percent credit cards
Some credit cards do not charge any interest for a limited period, either on purchases or balance transfers, but there are some pitfalls to be aware of.
First, you need to be accepted for a 0 percent card. Then the exact terms of a 0 percent card will vary slightly depending on your financial circumstances, such as your salary, credit score, and how much you spend on bills.
For purchases, a top offer is from NatWest, with a 23-month interest-free period, which increases to 23.9 percent after that point.
Similarly, Barclaycard has a 0 percent credit card for 23 months, rising to 24.9 percent afterward.
Capital One, Fluid, HSBC, Tesco Bank, RBS, Sainsbury’s Bank, Santander, Thimbl, Ocean Bank, M&S Bank, MBNA, Vanquis Bank and Virgin Money also have their own 0% cards.
Balance Transfer Options
0% interest balance transfer credit cards are popular with people consolidating debt, as they offer a breather to keep up with payments.
These can help you manage debt, since outstanding balances transferred to these cards do not accrue interest for a set period of time.
This allows you to pay off the card balance without accruing interest, helping you get out of debt faster.
Then you need to make sure you can pay off the debt before the 0 percent period ends, or you’ll start paying interest again.
Try not to use the card to spend or withdraw cash, and be sure to make the minimum payments, otherwise you may lose the 0% interest benefit.
For balance transfers, one of the best options is a NatWest card, with a 0 percent period that lasts 30 months, with the rate increasing to 23.9 percent after that.
The card has a transfer fee of 2.99 percent.
As the name suggests, this is the fee the bank charges when you transfer money to the card for the first time.
Most of these fees are in the region of 2 to 4 percent.
But some banks have credit card options with no balance transfer fees, like Barclaycard and Santander. But again, keep in mind that providers offer different deals to different people.
Credit card providers have been making their offers less generous by raising balance transfer fees and reducing interest-free periods.
How to get out of credit card debt
If you’ve accumulated unaffordable amounts on a credit card, the first thing to do is tackle the most serious debts first.
Charity Citizens Advice said ‘priority debts’ such as rent, mortgage payments, utility bills, council taxes and court fines need to be paid first.
This is because not paying them can cause you to lose your home or have your power cut off.
Once this type of debt is addressed, verify that you are definitely the person responsible for the credit card debt.
The next step is to make sure that your credit card provider didn’t break the rules when you took out the card. If they did, they could cancel your debt.
This can happen if, for example, your credit card company didn’t do enough to verify that you could pay the refunds.
If you think your credit card provider may have broken the rules, talk to a Citizens Advice advisor.
If none of the above apply, see if you can continue to make your minimum monthly payments. If you can’t, talk to your credit card company, as they can freeze payments for a period and help you rebuild your finances.
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