Have you looked at the interest rate on many credit cards these days?
Do you know the interest rate on your own credit cards?
Depending where you look, the average credit card interest rates are anywhere from 16% to 18%.
One credit card issuer has a card with an interest rate of 79.9%!! Now that’s high.
In a statement issued by the CEO of the credit card company, Premier Bankcard, Miles Beacom said, “We need to price our product based on the risk associated with this market and allow the customer to make the decision whether they want the product or not.”
The interest rate is so high, if you were to use the card and keep a balance on it, you would never pay it off.
Sandy Shore with Novadebt stated, “Anyone who feels they have no choice but to get one of these should get help from a credit counsellor.”
“There are other alternatives, like a debit card or even a secured card. The counsellor can give the consumer other ways to re-establish their credit, depending on their circumstances.”
She goes on to say, “I would caution anyone who is considering a card like this to wait. Other credit card issuers will be adjusting their products and there may be better alternatives coming out.”
“If someone wants to take a chance on a card like this, they should use it only as a convenience and pay the whole thing off when the bill comes,”
“Many consumers who have credit that poor do not have good credit habits and are likely to carry balances.”
Once you know the interest rate on your credit card, and the balance, you can calculate how long it will take to pay the balance off. If you pay just the minimum monthly payment, it will take years and years.
If you pay just the monthly minimum on a £5,000 balance on a card that has an interest rate of 18%, it will take you over five (5) years to pay it off.
UK Credit Card Usage
Here in the UK, we like our credit cards. We are the largest “credit card payments market” in the EU.
We here in the UK account for more than 30% of all EU credit card spending, and over 70% of the EU card market. We do not do things in half-measures.
Here are a few more statistics:
- 97.4 million credit cards in circulation as of November 2015. There are only about 65 million
people living in the UK. And that is men, women, and children.
- 54.1 million contactless cards were in circulation as of November 2015.
- Around 42% of credit card balances are incurring no interest.
- 75% of all spending in the “retail sector” was done using cards.
- The average “domestic” charge is £43.43.
- In November 2014 the average interest rate was 10.67% and in 10.36% in November 2015.
The lower the interest rate on a credit card, the lower the monthly payment can be, however, again if you only pay the monthly minimum payment, it takes a long time to be debt free.
If you have a low interest rate on a credit card, and you pay extra towards the balance each month, naturally the balance will reduce at a quicker rate.
One way to pay off a credit card balance at a quicker rate is to transfer the balance from a high interest rate card, to a credit card with a lower interest rate, or a 0% interest rate.
You do a balance transfer.
Recently my bank sent me a notice about doing a balance transfer and for doing so they would reduce the interest on the balance transferred to 0% for 21 months. On the surface it does sound like a good deal, and it is a good deal, even with some of the finer details.
For example let’s say someone has a credit card with a £2,000 balance, and this card has an 18% interest rate, and minimum payments are £60. As we know, this will take over five years or more to pay off.
By transferring the £2,000 to a zero interest credit card, even if you were to continue making payments of £60 a month, the balance would be paid off in around 33 months, or half the time.
However, you only receive the 0% for 21 months, if you can pay £95 each month, you could have the balance paid in the 21 month period.
Some other fine details were that there was a transfer fee of 2.9% of the balance transferred added onto the account. In addition, any other charges placed on the credit card would incur interest at the current rate the card has.
Transferring the balance is a way to reduce the interest, and pay the account off quicker. But you must be disciplined to pay more than the minimum payment.
If you have more than one credit card, or a credit card, store card, catalogue balance, or other card balances, one way to pay them off quicker is a consolidation loan.
Consolidation loans consolidate the accounts into one account.
An example may be this:
- You have a credit card balance of £1000 at 15%.
- A store card balance of £500 at 20%.
- A catalogue bill for £300.
- An overdraft of £750 at 12%.
In total you have balance of £2,550.
You take out a loan for this amount, at a lower rate of interest and possibly a better term, say 36 or 48 months, and pay the other accounts off.
You are then left with a lower monthly payment than all the accounts combined, and a light at the end of the tunnel as to when you will be debt free.
While a consolidation loan can be helpful, you must first address the issue(s) that brought you having balances on the accounts.
It does a person no good to consolidate or transfer a balance on an account, if they go back and continue to use the accounts that were paid in full. You then have the new loan, in addition to the old accounts to pay.
So balance transfers and consolidation loans, can be ways to paying off credit cards, saving interest, and becoming debt free.
,Have you looked at the interest rate on many credit cards these days? Do you know the interest rate on your own credit cards? Depending where you look, the average credit card interest rates are