A new survey by UK Finance paints a much more worrying picture. Almost half of all credit card holders are now accruing interest on their debt. As consumers face a labyrinth of credit card offers, it is increasingly important to understand the many different offers and agreement terms present in today’s market. With nearly 60 different credit cards on the market, consumers need to consider their options wisely in order to get the greatest financial advantage.
As of December, the average 0% balance transfer term has shot up to a three-year high. It now sits at a record high of 585 days, or 19 months, as per Moneyfacts. This extension provides consumers with a real chance to get their debts under control. At 35.7%, the average credit card purchase APR is a jaw-dropping 36. And that means the stakes for smart borrowing have never been higher!
Even though financial experts all agree on the need for a clear repayment strategy. Sarah Coles, head of personal finance at Hargreaves Lansdown, emphasizes the need for “a foolproof plan for repaying it in full, and on time, to avoid racking up interest.” This policy guidance is important for consumers who hope to take advantage of promotional rates without getting trapped into cycles of debt.
Understanding Interest Rates and Fees
The typical fee for a credit card has just reached an all-time high of 2.51%. This figure is a 0.04% increase from 2.44% last year, meaning that carrying a balance is getting more expensive. If you move your existing balance of £2660 onto an interest-free card, you’ll accrue a charge of £66.77. This figure assumes the average fee.
Clearing a balance before the end of a promotional period is critical, as highlighted by Charlie Evans, a money expert at Compare the Market: “Clearing the balance before the 0% period ends is important, as rates can jump sharply afterwards.” We know promotional offers are enticing. Look out or you might face some nasty surprises in your bank account!
Furthermore, when applying for a credit card or personal loan, lenders will quote interest as an annual percentage rate (APR). Gold APR at least 51% of approved applicants get the advertised APR. This provides consumers a straightforward benchmark for comparing different offers.
Promotional Offers and Rewards
The landscape of promotional credit card offers has changed dramatically in recent weeks. Mortgages TSB, Lloyds and Marks & Spencer are all still available at 0% purchase cards. None of these cards come with that eye-catching 25-month long promotional period. This extension gives borrowers the ability to make payments without interest accruing for a significant period.
Plus, many credit cards offer extremely attractive rewards programs. Nicky Kelvin notes that “there are significant bonuses on cards like American Express Platinum, which comes with travel insurance and hundreds of pounds in credits.” These benefits can enhance the value of using certain credit cards, making them more appealing to consumers seeking rewards alongside financial management.
As Rachel Springall points out, “the market has seen a stark improvement to interest-free terms, now about 70 days longer than a year ago.” This is a recognized positive trend showing consumers more favorable options are now safer and more readily available than in past years.
Strategic Considerations for Credit Card Users
With such a wide variety of options to choose from, people need to take an honest look at their financial behavior before selecting a credit card. Personal finance expert Sarah Coles cautions that you need to be “realistic about how you use debt. She cautions consumers against thinking of new credit limits as new money. Many consumers may spend more simply to gain points or rewards.
For anyone else who doesn’t need such a long lead time, there are even better short-term offers. One particularly exciting offer included a very limited time, cardholder-only promotion with Barclaycard. You might get 15 months at 0%, then 24.9% APR, no fee and £20 cashback! Such options can deliver significant savings for consumers who are smart with their borrowing.
Credit card acceptance rates vary according to your credit score, so check before applying. Charlie Evans advises that “acceptance could be tougher to secure if your credit score has dipped, but an eligibility checker can help you see offers you’re likely to be accepted for.” Along with the Department’s guidance, this updated tool will help potential applicants step smartly into new financial opportunities.