Cost of credit card debt on the rise

The latest Moneyfacts UK Credit Card Trends Treasury Report reveals that the average purchase and cash rates on credit cards have risen during the second quarter of 2018, with the average cash withdrawal fee also seeing an unwelcome increase. This means that borrowers might now be having an even harder time getting out of debt.

Credit card rate rises

The results come at an unfortunate time, as statistics from The Money Charity point to an increase in credit card borrowing of around £3 billion compared to last year, with £318 million of credit card debt needing to be written off in the first three months of 2018. Considering the current economic uncertainty, any increase in interest rates could see these figures rise even more over the short term.

As you can see in the table above, "the average credit card APR rate has hit 23.1% over the last quarter (including card management fees), with the average purchase and cash per annum rates rising also," reports finance expert Rachel Springall. She went on to explain that: "In Q2 2018, Bank of Scotland, Halifax, HSBC and Lloyds Bank increased the interest rates charged on standard purchases and cash by 1%, while Tesco Bank increased the cash withdrawal fee by 0.99% on its entire credit card range."

Now, these may seem like small increases, and not much to worry about, but even a small increase in interest could have a large impact on someone in credit card debt. What's more, these changes have taken place in just three months, and include some of the biggest providers. As Rachel says: "It's unsettling news at a time when consumers would not be expecting interest rates to rise, especially if credit cards are their lifeline."

Debt increases

Adding to the concerns is the finding that debt is on the rise, with the latest statistics from The Money Charity showing that total credit card debt sits at £71.1 billion across the UK. This means every household has on average £2,613 worth of debt, a rise from last year's average of £2,521 per household, or £68.08 billion overall.

"So, while many card providers are poised to offer introductory interest-free deals aimed at customers planning a purchase, balance transfer or money transfer, customers could nonetheless struggle to repay their debt before interest applies and, in the worst circumstances, require a write-off," said Rachel. "Indeed, UK Finance found that 55.6% of credit card balances were bearing interest in Q3 2017." This means that over half of credit card customers are not taking advantage of an interest-free term, or have exceeded their introductory 0% period.

"Clearly, there are many consumers out there struggling to cope, and while credit cards are considered a common way to carry debts or switch them to an interest-free deal, this is only a temporary fix that simply buys a little more time to pay debts back," Rachel concluded. "Without diligence, a growing debt could overwhelm customers and dent their chances of being approved for important financial milestones such as a mortgage. If in doubt, customers should seek out help, for instance from the debt charity StepChange."

What next?

If you're struggling with credit card debt, you could take a look at the top 0% interest balance transfer cards to give yourself some breathing room while you get back in the black. However, remember that the longest interest-free terms might come with the highest balance transfer fees, so always do your homework before deciding on a card. Reordering the Best Buy table based on balance transfer fee (by clicking on it) can be a good place to start.

If you're really stuck, but don't want to contact a debt charity just yet, remember that your loved ones are always there to support you. We also have a guide that might point you in the right direction and help end the debt cycle.