Georgie Frost, head of consumer affairs at GoCompare, comments on the Bank of England’s latest consumer credit statistics:
“Rising consumer debt levels is concerning for both the country and for individuals. We know from the FCA’s own report earlier this month that many people are already struggling. Half the population are said to be financially vulnerable with one in six unable to cope with a £50 increase in monthly bills. One area of particular concern is the increase in those using credit cards just to keep their heads above water. Long-term customers with expensive credit card debt are very profitable for firms who have little to no incentive to tackle the problem of over-indebtedness. A rise to the base rate of interest from the Bank of England this week could push many over the edge.
“The cost of borrowing is on the up with the average APR now at a ten year high. Interest-free balance transfer credit cards can be a very good way to help pay off expensive debt, but only if you stick within the rules. We are already seeing some of the longest deals disappear and there is no guarantee that you could just shift any existing debt on to a new card once your existing term up is up.”
Georgie’s tips for stress-free credit card use:
- You could save hundreds or thousands of pounds by shifting existing credit card debt to a new balance transfer card, but not everyone gets accepted for the headline rate. Being turned down could affect your credit rating, which may affect the rates you get offered in the future, so it is important to use an eligibility checking tool (sometimes called a ‘smart search’ or ‘soft search’ facility). Many providers and comparison websites – like GoCompare – offer such a service, and by using it you can see the cards available to you before you decide to apply.
- Make a repayment plan. It’s easy to sign up to a 0% purchase or balance transfer deal, and then forget about the repayment schedule and end up being charged interest. So diarise your offer end dates and check your statements regularly.
- Don’t be tempted. If you took out a card for a specific purpose – a balance transfer to clear a debt, or a 0% purchase card to buy a sofa or pay for your annual insurance premium, for example – and don’t want to spend any more on it, keep it safely hidden out of your wallet, don’t remember the pin and forget about it. Set up your direct debits to clear the balance by the end of the 0% free period and avoid adding to the amount owed.
- Size matters. If you can clear your debt in six months, why apply for a card that has a 30 month interest-free period? Go for the cards that you are eligible for, that meet your needs, and that offer the best benefits for you – a card with fee-free transfers but a shorter interest-free period could be better for you than the longest 0% balance transfer card available, if you can clear the debt in time.
- Limit your limit. If you don’t need a big credit limit, or if you receive an unwanted increase, call your provider to reduce it. This is particularly important if you might be tempted to spend more on your card, or if you are applying for other sorts of credit – mortgages and loans for example – as ‘available credit’ can be taken into consideration by other lenders.
- If you are using your credit card to pay off bills and feel you are struggling to manage your debt there is lots of free help and advice out there from the likes of CAB and Stepchange Charity.
For more information, see GoCompare's guide on how to make your credit card work harder for you.
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