The last five years have been heaven for credit-card junkies. Money has been easy to get, and for those who know how to work the system (trading balances around between 0% interest cards and so on) it has been very cheap too.
But it looks like the good times might be coming to an end. According to Moneyfacts.co.uk, the number of refused credit-card applications has risen 17% in the last six months. Worse, those who already have cards are finding the costs of keeping them are rising.
Moneyfacts.co.uk also notes that in the last two months alone the credit-card companies between them have come up with 125 new fee and rate increases. They have increased the fees for withdrawing cash and upped the interest rate you pay on that cash for good measure. They’ve raised balance transfer fees and put up the rates for foreign usage of cards. And some of them have even raised their headline rates.
Much of this – the headline rates aside – is sneaky stuff. The credit-card firms are well aware that most of us look at the annual percentage rate (APR) on a card and ignore the rest. But while the APR is often nonsense in itself (according to Which magazine there are 12 different ways of calculating it), the fee and rate increases that really cost us tend to be hidden from public view in lengthy terms and conditions printed in tiny letters that make them almost impossible to read.
It’s not possible in this space to list all the evil doings of the credit-card firms, but one example given by Moneyfacts.co.uk offers a flavour. Imagine you withdraw £500 from an ATM using your credit card and then make the minimum payment only until the debt is paid off. Your total interest bill will be a shocking £1,382.70.
This is partly down to the fact that the average interest rate in cash withdrawals is 23%, but also a function of the 3% fee you paid for getting the cash in the first place (and paid interest on) and that minimum payments are now set so low that it can take 20 years to pay off a £500 debt if that’s all you pay.
It’s usual at this point in this kind of article to say that not all credit cards are bad, but I’m not sure that is true. There is much talk at the moment about cash-back cards and how nice it is to be refunded 2%-4% of your bill when you use a card. But why are card firms doing this? Because they know it will tempt people to spend money they can’t pay back right away and that the interest they will then get to charge them will easily cover the measily 4% cash back they’ve paid.
The banks are well aware that the majority of the UK population either can’t do, or can’t be bothered to do, maths and that is exactly why they arrange things as they do. The only way to make sure you aren’t one of their victims is to cut up your cards.