Gordon Brown highlighted changes that could help consumers avoid debt problems and save them around £300million a year on their credit card debts.

In a reversal of current industry practices, repayments on store card and credit card debt must be used to repay the most expensive debts first before cheaper borrowing.

Gordon Brown seeks to tackle credit card debts

There will also be a 60-day right for consumers to reject credit limit increases and a ban on credit limit and interest rate hikes for those facing financial difficulties.

Current practices cost the average card-holder around £1,500 and allow card firms to take advantage of people who do not repay their credit card debts in full each month.

Almost all companies charge different rates of interest depending on the type of transaction completed – generally charging more for cash withdrawals and purchases.

Prime Minister, Gordon Brown, said: “These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing.”

Consumers are also set to be given more guidance on the consequences of repaying too little, and an annual statement which would allow them to compare the costs against other providers.

Richard Thompson, partner at business consultancy PricewaterhouseCoopers, said the plans represented a “sensible and balanced” response to concerns.

He added: “The proposals will provide consumers with a greater level of transparency and control which will allow them to make more informed decisions as to their borrowings.”

The changes are due to come into force in February 2011, following results from the Government’s review on credit and store cards in their consumer white paper in July last year.

Debt problems loom as interest rates on small loans doubles