Don’t pay too much for your credit card – here’s how to slash your rate

Times are getting tougher for holders of credit-card debt. The Bank of England’s base rate may be stuck at 0.5%, but the average credit-card interest rate is more like 19%. That’s the highest they’ve been since 1999. Then the base rate was 6% – 12 times higher than it is now.

And it isn’t just new credit-card applicants who are being hit by price rises. Existing customers who might have thought they were safe are also seeing huge jumps in their rates. Earlier this month, Capital One announced it was increasing the interest rate for existing card holders with some customers’ rate on outstanding balances jumping from 8.01% to 15.31%.

The credit-card companies blame the rises on tighter government regulations and on the state of the economy: rising unemployment has led to a rise in the number of people defaulting on their debts and the providers are passing these costs on to more creditworthy customers.

But whatever the cause, these costs are devastating for anyone trying to pay down debt. A cardholder with £5,000 worth of debt who pays off only the minimum 2.5% each month will end up repaying in total around £2,300 more than three years ago, says James Charles in The Times.

So what can you do to try and keep your costs down? First, be aware that credit-card firms aren’t allowed to increase interest rates in the first 12 months that you hold a new card. After that they can only raise the rate once every six months.

You’re also entirely within your rights to refuse to accept a rate rise from your provider. The rules around this are complicated, but the basic upshot is that you can reject the rate rise. Yet if you do this, your credit-card company will close down your abilityto borrow any more money – you won’t be able to use your credit card anymore. However, you will be allowed to clear existing debt at your original, lower interest rate.

Then, assuming you are in the mood to run up more debt, you can switch your spending to a new card – there are still plenty of good deals out there. Tesco Bank’s card offers 0% on purchases for the first 12 months, for example. If you just want to transfer a balance over to a new card, look at Virgin, which offers a rate of 0% for 16 months with a balance transfer fee of 2.98%. But do remember not to make any new purchases on your 0% balance transfer card. That’s because new debt will come with a high interest rate and won’t be paid down until you have paid off your balance transfer in full.

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