High Credit Card Interest Rates
It will come as little surprise to many credit card holders that credit card interest rates are at their highest for 12 years. People know from their own experience how high credit card interest rates currently are but the website Moneyfacts.co.uk has highlighted this fact with a brief report showing that while the official bank interest rate is at the lowest it has been for 300 years the credit card companies are ramping up their interest rates.
In Feb 98 the bank rate was 7.25% average cc rates were 21.1% – Difference = 13.85
In Feb 2005 bank rate was 4.75% average cc rates were 15.2% – Difference = 10.45
Feb 2010 bank rate is 0.5% and average credit card rates are 18.8% – Difference = 18.3%
The report shows that 2006 was the cheapest time to have debt on credit cards when compared to the official bank rate with a difference of 10.3% but now, just a few years on, everything has changed.
The excuse given by the credit card suppliers is that they are having to manage a very significant number of defaults by customers but it seems that they bring a lot of that on themselves by making customers stick to the required repayment plans rather than allowing some flexibility to help their customers manage the repayments.
While they claim to be willing to help customers, they seem all too ready to turn over the debt to a debt collection company for pennies in the pound and arguably they are the cause of the losses they suffer because they are so eager to ditch the debt at any price. The majority of people do want to repay their debts but when times are hard and they find it difficult to keep up with the payments they previously easily managed they get little help from the credit card companies.
Raising interest rates on these debts does not make it any easier for these people to repay their debts. It actually makes it far less likely they will be able to pay. When your credit record starts to deteriorate like this everything becomes more expensive. Your costs rise and you have even less money available to repay debts.
If you are struggling to repay debts then it is likely your bank account will have a few items going unpaid in which case your bank will enthusiastically attempt to make your financial situation far worse by removing a couple of hundred pounds from your account every month before you even begin to try to pay your bills thanks to their clever people who come up with yet more interesting ways to justify taking your money from your bank account.
Note to self – Idea for a bumper sticker. ‘Criminals do it with knives and guns, Bankers to it with pieces of paper.’ Might be a little long. Maybe shorten it to ‘Bankers have no morals’
Lessons must be learned from our experiences over the last couple of years and for credit card companies it must surely be that their business model was flawed. The idea that you can fight to lend money to people and go to any lengths to increase your customer numbers forgot about the fact that times change as do financial circumstances. Maybe that model made sense in 2000 to 2006 but what planning had been done for when times were bad. It’s not as though we had never had recessions before.
Perhaps they were too naive and they believed the then chancellor when he said, “No more Boom and Bust” They clearly imagined there was a gravy train that could be milked long into the future though there were plenty of less clever, less well paid and less experienced ordinary people who were saying the buy now and pay tomorrow culture could not survive much longer.
If credit card companies really do worry about defaults they need to do more to help their customers avoid financial ruin and find a way to repay their debts. While raising interest rates on customers whose credit rating is sliding probably makes lots of sense when you look at the figures in a plush head office in London, the reality is that it leads to devestated lives and defaulting customers out there in the real world.
