Since the economic downturn began, British borrowers have not had the best of times.
As the UK continues to suffer from high levels of unemployment, credit card providers are concerned that many customers will be unable to afford to repay their debts.
As a result, lenders have become less willing to dole out credit to customers and in many cases have hiked up their interest rates to reflect the increased risks they face.
In fact, according to recent research by Moneyfacts, credit card rates have soared to their highest level since 1998, with the average credit card rate hitting a high of 18.8% APR Typical - up from 14.8% APR Typical in 2006.
This means a borrower with a £5,000 credit card debt, who makes the minimum payment each month, will now have to repay a tremendous £2,289 more over the life of their debt than they would have in February 2006.
What's more, other charges such as balance transfer, cash withdrawal and foreign transfer fees are also continuing to increase, leaving customers paying more right across the board.
Read on to learn more about what you can do to fight back against credit card rate increases and keep the cost of your debt at an affordable level.
For existing customers
If you have recently received a letter informing you that the interest rate on your credit card is increasing, you don't have to accept this.
First of all, find out if you can shift your balance onto a different credit card that charges less interest. For example, right now the Virgin Credit Card is offering balance transfer customers a 16 month holiday from interest payments.
Another option is to contact your lender and refuse to accept the rate increase. This means you should be able to pay back your existing debt at the original rate over a reasonable amount of time - i.e. you won't be forced to repay the entire balance immediately. However, this does mean you will be unable to make any new purchases using your card.
To find out more about 'rate jacking' check out Laura Starkey's article 'Don't let them hike your credit card rate.'
For new customers…
With the average credit card rate currently at almost 19% APR % Typical, it's crucial that if you do decide to borrow you do so in the cheapest way possible.
First decide what you will be using your flexible friend for. These days, there are all different kinds of credit cards available on the market so it's important you pick the right plastic for the right job.
For example, if you need a credit card to spread out the cost of an expensive purchase, a card with 0% purchasing power is likely to be best suited to you. However, make sure you work out exactly how much you will need to repay each month to ensure you clear your balance before the 0% deal expires.
Remember, in the current climate only individuals with an excellent credit score are likely to be accepted for many of the market's top deals. Therefore before you apply for a new credit card it is a sensible idea to check your credit rating first.
You can check your credit report online quickly and easily for free as part of a 30 day free trial with Credit Expert - just be sure to cancel your direct debit before the month is up and they start to charge you.
Five top borrowing tips for all
Finally, here are five quick tips to help all borrowers keep the cost of their credit card debt as low as possible.
1. Watch out for negative payment hierarchy
Negative payment hierarchy is where your provider weights your payment towards your cheapest debt first and leaves the more expensive debts (e.g. cash withdrawals) until last. This means your expensive debt will keep accruing hefty interest charges until you are able to tackle it.
To avoid this nasty credit card trick, the general rule of thumb is: 'Never spend on a balance transfer credit card'.
2. Pay more than the Monthly Minimum Repayment
If you only ever pay back the monthly minimum repayment (MMR) it might take you years, possibly even decades, to pay back even a modest debt - and it will probably cost you a fortune in interest charges too.
Overshooting the minimum each month, even by just a few pounds, could help dramatically reduce the lifetime of your debt.
3. Don't withdraw cash
Credit card providers often charge much higher levels of interest for cash withdrawals than they do for regular purchases. Therefore, try to avoid using your credit card at cashpoints and stick to using a debit card for taking out cash instead.
4. Never miss a payment
Make sure you always know when your credit card payments are due. If you miss payments, not only are you likely to be stung by a hefty late payment charge you could also seriously damage your credit rating. What's more, your provider may withdraw any promotional deals you are benefiting from.
5. Be sensible
Finally, never borrow more than you can afford to pay back. Paying by plastic can be far less of a reality than handing over crisp twenty pound notes, so make sure you keep a close eye on how much you 'stick on the card'. Remember, you will eventually have to pay back every penny you borrow. ( mailcompare.mailonline.co.uk )
Credit card interest rates have hit their highest level in 12 years, leaving millions of consumers facing crippling debt repayments.
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