Credit card rates have hit an 18-month high, while minimum repayments also have fallen, meaning many card holders will take even longer to pay off their debts.
Credit card interest rates have reached new heights – costing borrowers repaying a typical debt around £700 more over the life of their debt.
Figures from analysts Moneyfacts show that the average credit card rate for purchases is currently 19.1% – the first time they have topped 19% for 18 months.
While there are plenty of low-rate and no-rate credit card deals around, the majority of credit card customers are still on cards charging high rates. Moneyfacts says that a month ago, the typical interest rate was 18.9% and a year ago, it was just 18.1%, a percentage point lower than today.
Rachel Springall of Moneyfacts said: “Shoppers may be relying on their credit cards to cover Christmas this year; while this method may seem secure and straightforward, customers should be aware that the interest they are being charged is rising.
“If in doubt, shoppers should opt for an introductory interest-free purchase card, which gives them some breathing space so they can focus on repaying solely the amount they have spent.”
The best option at the moment is the Tesco Clubcard credit card which offers 16 months interest-free spending.
In addition, Moneyfacts says that there has been a shift to card companies demanding smaller monthly repayments. It says that most card companies now demand just 1% of the outstanding balance must be paid back each month.
This means someone with a £5,000 debt on a card who repays just the minimum 1% each month will repay an additional £692 over the life of the debt compared to a year ago.
However, even if someone moves a £5,000 debt to an interest-free balance transfer deal, there will still be a cost as these cards charge a transfer fee of typically 3% or £150.
But in the long run it will be a better idea than sticking with an expensive card. Currently the longest 0% balance transfer deal is Barclaycard’s 23 months with a balance transfer fee of 2.8% – the rate after the 0% period expires is 17.9%.