It was revealed at the beginning of the year that in total Britain owed a staggeringly large amount of money on their credit cards. In total, people in the UK owned on their credit cards over £72.5 billion, with consumers adding over £400 million to their credit card balances in November 2018 alone. This means that the average British household owed approximately £2,688 on their credit cards, which is known as being one of the most expensive ways of borrowing.
Taking into account the additional information that the total owed is 24 per cent higher than it was on the eve of the financial crash in 2008, and with consumers also paying off their credit cards at a higher average rate of interest than a decade ago, what impact will this be having on credit card deals in the country? We decided to take a closer look.
The top credit card deals are reducing
The best credit card deals on the market in the UK have reduced in the past twelve months as a result of this spiraling credit card debt. This has been a result of the city watchdog, the Financial Conduct Authority, providing a warning to the banks to take control of credit card debt, having become aware that many customers were becoming ever more reliant on cheap debt.
Consequently, the intervention by the FCA has led to the reduction in the number of lengthier interest-free credit card deals that are available to consumers.
For example, many of the 0 percent balance transfer credit cards on offer have reduced the 37 month interest-free period they initially gave borrowers to just 32 months now, according to the data provider Moneyfacts. Furthermore, some of these credit card providers have introduced fees to shift balances from another provider as part of the deal.
Will borrowers be charged more?
Experts have raised concerns that the decrease in the number of good credit card deals available for UK consumers will not actually reduce their overall borrowing costs, but rather increase the amount of fees they end up paying. This is because the reduction in credit card deals available on the market will lead many borrowers to move their balances more frequently to deal with a lower interest-free period. In the end, this change could mean that the overall credit card cost for the consumer is actually higher in the long-run.
For example, if a borrower was looking to transfer a £3,000 balance, they could end up having to pay as much as £60 to £90 in balance transfer fees, on a more frequent basis. Whilst it is important to note that not all cards incur charges on balance transfers, those that do not nevertheless tend to have much less favourable terms when it comes to the credit cards offers they provide. As a result, it means that in the future those using credit cards to shift debt will need to be much savvier about the way in which they do so to avoid incurring even higher costs for doing so.
The danger of rising credit card debt and the difficulty of acceptance means that more and more borrowers are attracted to payday loans for bad credit, where interest rates can be significantly higher and often exceed 1,000% APR.
Where possible, borrowers should seek low cost alternatives including borrowing from credit unions where the APR is 36%, using zero percent credit cards and borrowing from family and friends.