The Bank of England report also makes the point that effective rates on personal loans and overdrafts have fallen since late 2008, although by much less than Bank Rate. However by contrast, credit card interest rates have remained broadly the same.
Credit Card Arrears
Depressingly the Bank of England adds that most of the UKs major lenders expect arrears, including credit card arrears, to increase over the next few months as unemployment continues to rise.
The Bank of England credit card figures come at a time that some credit card companies are increasing their interest rates by up to 10%. This inevitably means that some consumers are faced with the very real prospect of serious credit card debt.
The well-known UK financial journalist Martin Lewis, commenting on the interest rate increases on his Money Saving Expert website, has said, “These massive interest rate hikes from companies like Egg, Barclaycard and MBNA are what we call ‘rate-jacking’ – as they’re hijacking accounts to irresponsibly boost the costs – blighting people’s ability to manage their debts.”
While acknowledging the increases are not across the board Mr Lewis said, “The amount they (credit card companies) charge depends on customer’s credit rating.”
Best Credit Card Deals
Consequently there has never been a better time for people to search maybe logic for the best credit card deals. For those people unfamiliar with % balance transfer credit cards, some research is essential before choosing the new card.
Balance Transfer Credit Cards
Balance transfer credit cards with a % rating are usually for new customers, so for a consumer that may be paying around the 16% interest mark, look for a card that offers the longest interest free period. There are currently deals offering interest free periods of between 12 – 16 months. People should, however, be aware that there is usually a fee of around 3% to set up the balance transfer.
While on the face of it the process seems quite simple there are several crucial points to be aware of:
- If the balance transfer limit on a new credit card is not enough to repay the debt on the existing card there is nothing to stop people applying for a second balance transfer card. However it is essential to be aware that multiple credit applications will have an adverse effect on a person’s credit rating.
- A second point to consider is it is absolutely crucial not to spend on a new balance transfer credit card. Any spending will inevitable carry a much higher rate of interest and the credit card company automatically gears repayments to the lowest interest rate first.
To sum up, spending on a card that accrues a higher interest rate will be repaid last, meaning that some or all of the credit card benefits are lost.