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Interest Rates Rising with Underhanded TechniquesMany credit card companies have been instigating a major increase in credit card interest rates for the last two years. This rate has been squeezing the consumers who are already having trouble with their regular income spreading to all their expenses. On average the interest rate two years ago was 14.9 percent. It is now an average of 16.4 percent. This increase is seen as a direct response to the default fee being charged two years ago. The Office of Fair Trading received a number of complaints two years ago regarding the default fee credit card companies were charging. In an effort to please the consumers with what the OFT saw as undeniably high fees they forced the credit card companies to lessen the charges. The charges were 25 pounds on average and are now 12 pounds. The banks have of course found they are losing a great deal of income with this forced lowering of the rate. To make up this loss they decided to raise the interest rates for consumers. For those who can only clear a partial amount of their bill or make the minimum payment each month this could mean millions of dollars for the banks profit margin, and disaster for the credit card holder. The increase is directly affecting households that cannot afford the higher interest rates. They are already experiencing problems with the higher mortgage costs, utility bills, food, petrol, and council tax. In fact a lot of those consumers in this particular group are actually borrowing with the credit card. They have to supplement their income and this is the easiest way they can do so. The research being released regarding this conundrum shows that other credit card charges have also increased like the interest rate. Two years ago a few consumers holding credit cards were affected now the entire consumer base is being penalised for someone defaulting on their card. Any consumer who is paying their bill on time and in full each month is not going to be affected. They don’t have to pay the increase in interest rates because they can afford to pay the card off. Those who can’t pay the card off are struggling with their rising debt. Sometimes it is hard just to get the minimum monthly payment let alone more. Those with a balance of 5000 pounds who are paying 2.5 percent a month will pay at least 755 pounds in interest from an increase of just 1.5 percent on their purchase rate. The cash advances have also increased for interest rates and fees. Most of the cash advances are 3 percent with a minimum of 3 pounds. It used to be 2 percent and a 2 pound charge. Taking out cash from a credit card is not a wise choice for anyone. It is certainly a quick way to gain a little cash, but the results are disastrous. A 6.2 percent increase for the average interest rate on cash withdrawals makes it even worse to borrow money. They are making the entire situation worse by borrowing in this fashion. The best thing you can do is shop around for a card. As long as you look at each card available you can find a card that offers a deal. There are several cards offering zero percent introductory rates. In fact there are about 85 cards with this option. This doesn’t mean there isn’t a little trouble on the horizon though. Egg actually closed 161,000 consumer cards. Their reasoning was based on protecting the bank from too much risk with borrowers. The news reported that Egg actually closed accounts that were being paid in full on time every month as well as those who had high credit card limits. This effort was to ensure the bank would be making money and not losing it. Egg of course denies this was the reason, but there is always substantiating evidence to consider. Back To Financial News April 2008 |
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