Even though borrowing rates are at historically low levels, some credit card firms have hiked interest rates on cards aimed at their poorer consumers.
Less than a month ago the Bank of England reduced base rate interest to its lowest recorded level. Despite this, one of the UK’s largest credit card providers, Capital One, has revealed plans to penalise millions of their poorest customers with a rise in their interest rate by up to 6.94 percentage points.
Another credit card provider, American Express, was slammed last month when it announced that they would be increasing their interest rate from 36.6 per cent to 46 per cent on their BA Premium Plus card, thus making it the most expensive on the market.
Credit cards have often been cited by debt advice organisations as being a major contributor to the increase in consumer debts. Often the excessive interest rates make these balances difficult to clear, as the majority of a credit card payment goes towards covering the interest.
Plus, with minimum repayment amounts being lowered by many providers to maximise the amount of profit, consumers are finding these balances even harder to manage.
Debt help organisations recommend seeking impartial debt advice to find a suitable solution which could help to alleviate many issues.
Following their debt advice, they may recommend a debt management plan (DMP) or IVA (Individual Voluntary Arrangement).
Debt management is an informal solution which can be useful for people struggling with money, and help them to regain control of their finances. Debt management gathers credit debts (credit cards, loans, overdrafts, store cards etc) into one affordable payment, which is then distributed to creditors on a client’s behalf.
Debt management also enables repayments to be altered according to a client’s changing circumstances – so debt management is often referred to as a flexible debt help solution.
An IVA is a more formal debt help solution. A qualified Insolvency Practitioner is needed to administer an IVA as it involves a legally-binding contract which prevents creditors from changing their payment demands. Like debt management, an IVA gathers credit debts into one affordable payment, although IVAs are generally better suited to larger balances.
Reputable debt advice organisations include Chiltern Debt Management, The Debt People and Hamilton Locke. Their debt advice is free.
Consumer Affairs Minister Gareth Thomas has also warned that he would ask the Office of Fair Trading to investigate the credit card sector if providers did not make a stronger commitment to treating customers fairly.
