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.

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They obviously have their own points to make but it is an interesting explanation of how the mortgage market works and you can read it here… <click here>

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The cut of 0.5% reduces the official bank rate to just 1.5% a figure we have never seen before and one that takes us into new territory.

The cut will be welcome to mortgae holders who will now be paying less than they did at the start of the credit crunch but the banks are still being very cautious about lending to anyone and businesses and people looking for new mortgages are finding that money is still difficult to borrow.

The lowering of interest rates is intended to encourage consumers to start spending again but when you think that a large part of the consumers spending over recent years has been ramping up on their credit cards and credit cards are still charging typically around 16.9% when the bank rate was just 2% you can see how consumers have been ripped off in the past and are cautious about getting into further debt at such outrageous rates.

The average consumer doesn’t have a lot of money sitting around doing nothing. Most people live on each months money and at the moment that may only just cover the cost of living. I would definitely not encourage consumers to go out spending even more on their credit cards if they cannot comfortably afford repayments but at these ridiculous rates it is hard to see why anyone would choose to build up debts on a credit card.

We are going through a period of change and it will be difficult for many people but hopefully, when we do get through it, we will be in a new and more stable, sensible era where cash money is treated as an important item and credit cards are just a short term financial tool.  Credit cards and not appropriate for long term credit and with the outrageous interest rates charged by the credit cards have made consumers into a cash cow for the credit card companies.

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If the rate cut is passed on by lenders it should help millions of people who are struggling with debts and the cost of living and will make life a little easier for businesses struggling in the face of the consumer spending slowdown.

Most of the big mortgage lenders are likely to cut their rates to match the rate reduction though some mortgages which are based on the bank rate plus a percentage have limits on how low they drop. They have a limit that says the rate will not drop below a certain figure whatever the bank rate is.

It remains to be seen if the credit card companies can be bothered to cut their interest rates. They have shown little concern for doing so in the past and as we speak a typical credit card is charging around  19% and the bank rate as of today is 2%. No wonder the credit card companies can afford plush offices.

Let us hope that the credit card companies do respond and make some significant cuts in their interest rates. It would probably benefit more people than the cuts in mortgage rates though the amounts involved might be smaller.

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In a statement released at the time they said that ‘The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom.‘

Clearly they are concerned that there are going to be serious problems ahead causing such a cut in spending that inflation is unlikely to be the problem they previously thought.

So, the bank rate is now set at 3% while credit card rates remain around 18% and previous cuts seem to have had little impact on credit card rates.

While these rates remain so high there is little chance of indebted consumers who are struggling to repay their debts, being able to get out and spend. Spending excessively has brought us the problems we now have but at this time it seems to be in everyone’s interest to cut peoples expenses so the economy can get back to a properly working system.

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