Credit Card Costs Rising
Many of us living in the UK today are feeling the pinch caused by the global credit crunch and also the rising cost of living through basic items such as food and fuel. With wages down and overtime and bonuses being restricted, many individuals are turning to their credit cards as a source of income to help them out of their financial problems.
This course of action is clearly a one way ticket to financial ruin, with borrowers facing spiralling debts, which they will have no way of being able to repay.
Moneyfacts.co.uk has now issued a warning to individuals regarding the increasing cost of credit card debt. As credit card companies are finding it harder due to the current tough credit market, rates on cards have increased dramatically over the past few months. In some cases, the rate for purchases has increased by up to 3% and the rate charged for cash advances on a card have rocketed by up to 7%. In practical terms, this means that someone who has a credit card debt of £5000 through purchases and is making the minimum payment of 2.5% each month, will repay an extra £1823.75 interest over the total term of the debt, based on a rate increase of 3%.
The solution for those individuals using their cards to live on every month is quite simple, plan your monthly budget more effectively and keep track of what you are spending, making cuts where possible to avoid increasing the level of credit card debt. For those with an outstanding balance on a credit card, it is worth shopping around to find a more competitive rate. There is still a wide choice of credit cards which offer 0% balance transfers for a limited period, which could help many people reduce their balances.
The other option is to consolidate the debt by taking out a loan, on which the interest rate is likely to be much cheaper than that currently being paid. If this course of action is taken, it is important to destroy the card once the balance has been transferred, therefore removing any temptation to create any more debt.
