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.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

Kevin Brennan, Minister for consumer affairs feels the balance between credit card providers and the customers who use them may have got a little uneven. Few would disagree with that.

For the past few months there has been a consultation taking place which you can read about at www.bis.gov.uk/creditconsultation
The consultation is now closed but if you feel nobody consulted you then you can still leave comments on the site if you feel you have something to contribute on the matter.
(Why is the usual government way is to only ask organisations who benefit from, or those organisations opposed to, any proposals while apparently ignoring the consumers themselves? Surely the main focus should be on asking the consumers, the electorate, what they think?) The comments section on the website is an opportunity to put your point of view though how much weight it carries, goodness only knows. We know we have a government that doesn’t listen to people but they might pretend to now with an election looming.

The subjects up for consultation were:=
Allocation of payments – with lower interest debt being paid off first
Minimum Payments – whether minimum payment requirements should be increased
Unsolicited Credit Limit Increases – Card limits increased without consent
Re-pricing of existing debt – Increasing the interest rates without proper explanation (or justification)
Simplicity And Transparency – Making it clear what the costs are on credit cards

There are literaly hundreds of comments. Many pointing out that whilst increasing minimum repayment requirements on credit cards is a good idea in principle, the practical affect would be to push many people into bankruptcy. Hopefully this is not what the government wants and they will resist the temptation to simply increase the minimum payments on existing credit card accounts. It would make a lot of sense to increase the minimum repayments on any new credit card accounts and that way people would be better prepared and better able to deal with their repayments.

The fundamental problem we have with credit cards is that many of us use them in ways they were never designed to be used. Credit cards are a flexible credit facility and are very useful to use if the car suddenly needs repairing or the boiler breaks down. They are perfect for dealing with those sudden and unexpected expenses but they need to be repaid fairly quickly or they become a very expensive debt.

The fact that they are so expensive to use and very profitable for credit card companies has led to those companies to encouraging us to use them more and more. Credit cards are now part of our everyday lives and people have been encouraged to use them for their everyday spending.

Consumers have been misled by advertising which suggested that the purchase of a carpet whilst on holiday using your credit card made perfect sense. It might be a convenient way to deal with the currency issues but that carpet is probably still being paid for ten years later.

If you fancy an interesting little financial challenge I suggest you work out how much your credit card costs you if you make the minimum repayments. You can set up a spreadsheet very easily and enter the amount of your credit card debt. Just calculate the interest each month and delete the minimum payment.
The results will, I am sure, shock you. Paying the minimum amount keeps the debt going for decades and the money the credit card company makes in interest is astronomical.

There is no question consumers have been taken advantage of by the credit card companies. Rather than being happy to offer a flexible credit facility the providers have done their best to get consumers deeper and deeper into debt. The real purpose of those cheap credit transfers we all love to use has been to maintain your current debt at high interest rates while you pay off the lower interest rates first and oh, so slowly. The companies have been coining money faster than the Royal Mint.

Now I am not saying the the credit card companies are doing anything illegal as unfortunately the law allows all sorts of practices that we might think should be illegal. If you are a legitimate legally registered money lender it seems you can do just about anything you like and the only people who grumble are the people who owe you money and they can’t do anything about it.

If you decide to jack up interest rates from say 6.9 to 19% to 25% to 35% you can. Nobody is going to stop you so why not? It may seem immoral to charge 50 times the official bank rate but it is not illegal. The Mafia would probably charge you less, though their collection methods are a little more aggressive than the credit card companies.

If you have been on the receiving end of credit card companies debt collection calls you might wonder about that. The constant phone calls and demands for payment can take a terrible toll on people’s health and mental condition. It is slow torture as you struggle to make whatever payments you can and go without food and heating in an attempt to meet your repayments and after all that you then get hit with additional charges for late payment or missed payments even though you later did indeed make the payment so it was not missed.

The credit card companies are obviously entitled to make a profit and credit cards are a useful financial tool if used for their proper purpose but the greed of the credit card companies shows that, just like the banks, they do not care. They do not care about consumers. They do not care about customers and they certainly couldn’t care less what happens to the country. The will quite happily encourage everyone to get deeper and deeper into debt so long as that makes them money. They don’t care about whether you can afford to eat or heat your home.

Your ‘flexible friend’ is the potential enemy you keep in your wallet. Yes they can be helpful if kept within certain limits and used for their correct purpose but allow them to become a part of the way you live your daily life they could destroy you and your family and everything you have worked for.
If you want to leave comments on the government website you can do so here… http://www.bis.gov.uk/comments-on-credit-consultation

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

The cheap flights airline Ryanair introduced a £5 payment fee per one way flight some time ago but they allowed a loophole for users of the Electron card which was enabled a booking to be made for free. The company always claimed it was for a limited time and that time has come to an end. Booking using an Electron card will mean a charge of £5 being applied per passenger, per one way flight as from January 1st 2010.

There is a replacement free booking card and that will be the Mastercard Prepaid which will from today, December 1st 2009, be their free form of payment. No doubt many people took out an Electron card with the sole purpose of avoiding these additional booking charges and they, and anyone else who would prefer not to give money for nothing to Ryanair, should consider getting a Mastercard Prepaid card ready for their next booking.

It is thought by many that the only reason for allowing one solitary form of free booking is to avoid having to declare the additional costs in advertising since any charge that applied to every passenger would have to be included in advertised pricing. It seems like a sneaky trick and must surely leave many passengers feeling ripped off when they have to pay a £5.00 for each passenger, for every flight, when booking with a debit card is thought to cost the airline pennies rather than pounds.

Whatever the logic or reasoning, from a customer point of view the message is clear. Get yourself a Mastercard Prepaid Card and use that for booking if you plan to fly with Ryanair.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)