Credit card rates hit 13-year high

Last updated: Feb 8th, 2011
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A report by Moneyfacts shows that borrowers with £5,000 debt on their card, who repay the minimum each month, will now repay an additional £2,360 over the life of the debt compared to February 2006.

The comparison website believes the increase is partly due to new regulations that came into effect earlier this year which now require all credit card companies to use customers' repayments to clear their most expensive debts instead of the debt with lowest interest rate (so called negative payment hierarchy), which was common in the past. This means additional costs for credit card companies.

Read: How to make the most of your credit card

Michelle Slade, spokesperson for Moneyfacts, says: "Since the beginning of 2011 most card companies have moved to a positive order of repayments. This dent in their revenue stream is likely to mean customers will continue to see rates rise rather than fall."

In the past it was also easier to switch cards, but now providers are more selective when giving out cards with competitive 0% transfers and purchase deals.

 

Another fallback of these deals is that they are usually only for a limited time so many people benefit from them, then get stung when the offer period ends and their APR rate rockets.

That said, if you have a credit card with a massive APR see if you can find a better deal elsewhere. Many providers offer 0% balance transfer deals for around a year (so make sure you pay off your balance within that period to avoid getting stung by a hefty interest rate), and while you'll probably have to pay a fee for transferring your balance of around 3-5%, it often works out cheaper.

For the best balance transfer deals on the market go to our credit card round-up.

 

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