Spending on plastic has never been more popular as more and more rely on cards instead of cash. Indeed experts believe carrying cash could soon become a thing of the past. High Street spending on debit cards outstripped cash for the first time in 2005 according to Precious Plastic 2007, the latest study of the UK consumer credit market from accountants PricewaterhouseCoopers.
Our reliance on cards comes at a price though. The PwC research also revealed that credit card firms are feeling the pinch and their profits continued to this year as the industry came under unprecedented scrutiny from watchdogs such as the Office of Fair Trading, the Competition Commission and the Financial Services Authority.
Clamping down on credit card charges has got to be good news?
Unfortunately the combination of falling profits for card firms, tough action by watchdogs and the soaring popularity of cards is not necessarily good news for the majority of credit card users.
Experts estimate that new consumer protection rules cutting the fees charged by card firms for going over your limit and missing payments to a straight £12 could cost the firms £1 billion a year.
What goes down comes up elsewhere in what experts call a ‘waterbed effect’. That means charges pushed down in one area pop up somewhere else.
The credit card lenders will ultimately look to recoup these losses so you need to be aware of where these charges could come from and how to avoid them.
They’re out to get you
There are a variety of ways that the lenders may try and recoup costs and they include Annual fees. Keep an eye on your credit card statements for announcements on the reintroduction of the annual fee by your lender. It’s the most obvious way firms try to get their money back.
Increasing interest rates.
Two Bank of England interest rate rises in the last six months can mean that rates will be higher across the board. Lenders offer three different rates – one for purchases, another for cash advances, and yet another for balance transfers.
The rates for cash advances and balance transfers are sometimes higher than those for purchases. The general rule is to not use your credit card for cash withdrawals as these rates are usually the highest and the way lenders tend to make most of their money back.
You need to be aware of tiered APRs also as some cards have different rates to varying levels of outstanding balances for example 13.9% on balances under £3,000 and 15.9% for balances over £3,000. Some cards also have a penalty APR. This is where the APR may increase if you are late in making payments.
Increased balance-transfer fees.
It is common practice for credit card companies to levy a fee on balances you transfer and these are likely to increase in 2007.
At present this is likely to be between 2% and 3% and not many firms at present cap these fees so transferring a large balance can be very expensive. No more long interest free periods –
With the rise of so called ‘rate tarts’ who move credit cards regularly to get the best deals many of the lenders may start to reduce the length of their interest-free periods. Usually you do not pay any interest if you clear your card debt every month. That may change.
Increased interest rates for going over your limit.
Lenders could introduce much stricter penalties if you go over your credit limit such as increasing your rate or cutting your credit limit.
A savvy credit card user is a happy one!
If you are aware of all the possible penalties when you take out a credit card and keep an eye on any changes to your statements you can avoid paying more for your credit card usage.
Common sense tells us that the less you have on a credit card and the more you pay off each month the less you will be penalised but as we know this may not always be possible.
This is why we look at all the credit card offers for you to ensure you get a deal which matches your spending habits without costly penalties.
We compare all credit card providers to find you the best deal for your circumstances. Find your perfect credit card below and compare providers in our best buy tables
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