How to get the best credit card as rates hit a 28-year high

Credit card users pay extra if they can’t pay their bills in full, as the average interest rate has reached 23.1 percent – the highest level in 28 years.

The most recent data from the Bank of England shows that average quoted credit card interest rates have not been higher since December 1995, according to an analysis by broker Freedom Finance.

But for many borrowers, their figure could be even higher.

Alternate numbers from financial data firm MoneyFacts show that the average credit card interest rate is 31.2 percent — and many cards charge much more.

Most credit cards charge interest only if you can’t pay off the balance within the same month.

We explain how to make sure you get a good deal with your credit card.

Why are credit card rates rising?

These rates are influenced by the Bank of England base rate, which is a factor in banks’ pricing for financial deals such as loans and mortgages.

The Bank has steadily raised its base rate, which now stands at 5 percent, a steep rise from just 0.1 percent in December 2021.

The theory is that this will help bring down runaway inflation, currently at 8.7 percent.

The same trend for rising rates can be seen with personal loans, although these costs are lower than with credit cards.

The interest rate on a typical £10,000 loan rose from 5.85 per cent in May to 6.02 per cent in June, the highest rate since October 2013.

For £5,000 loans, the average interest rate rose from 10.15 per cent in May to 10.18 per cent in June.

But not all applicants get these rates and many end up paying much more.

Andrew Fisher, chief growth officer at Freedom Finance, said: ‘After a period of calm, consumer credit rates now appear to be rising again, with credit cards reaching their highest level in nearly 30 years.

“While personal loan rates have increased slightly, they still offer borrowers the opportunity to access the credit market at more attractive rates. It could lead to increased demand for personal loans as borrowers look for products to support their financial situation amid tight household budgets.”

How to get a better credit card deal

Credit cards come in all shapes and sizes, and the best deal for you depends on what you want.

For example, some customers choose credit cards that refund on expenses, while others may prioritize cards that give miles

However, for most credit card shoppers, a good deal comes down to one thing: rate. And there is no lower rate than 0 percent.

0 percent credit cards

Some credit cards don’t charge interest at all for a limited period of time on purchases or balance transfers, but there are a few pitfalls to watch out for.

First, you must be accepted for a 0 percent card. Then the exact terms of a 0 percent card will vary slightly depending on your financial circumstances, such as your salary, credit score and how much you spend on bills.

For purchases, there is a top deal from NatWest, with an interest-free period of 23 months, then rising to 23.9 percent.

Similarly, Barclaycard has a 0 percent credit card for 23 months, increasing to 24.9 percent after that.

Capital One, Fluid, HSBC, Tesco Bank, RBS, Sainsbury’s Bank, Santander, Thimbl, Ocean Bank, M&S Bank, MBNA, Vanquis Bank and Virgin Money also have their own 0 percent cards.

Balance transfer options

Balance transfer credit cards with 0 percent interest are popular among debt consolidators because they provide breathing space to get on top of payments.

These can help you manage debt as outstanding balances moved to these cards do not accrue interest for a period of time.

This allows you to pay off the balance on the card without interest rates rising, helping you get out of debt faster.

Then you must be sure that you can pay off the debt before the 0 percent period expires, otherwise you will pay interest again.

Try not to use the card to spend or spend money, and make sure you make the minimum repayments or you could lose the 0 percent interest benefit.

For balance transfers, a card from NatWest is a top choice, with a 0 percent period that lasts 30 months, after which the rate rises to 23.9 percent.

The card does have a transfer fee of 2.99 percent.

As the name suggests, this is the fee charged by the bank when they first put money on the card.

Most of these fees are in the region of 2 to 4 percent.

But some banks have credit card options with no balance transfer fees, such as Barclaycard and Santander. But again, keep in mind that providers offer different deals for different people.

Credit card providers have made their deals less generous by increasing balance transfer fees and shortening interest-free periods.

How to get out of credit card debt

If you have unpayable amounts on a credit card, the first thing to do is tackle the bigger debts first.

Charity Citizens Advice said ‘priority debts’ such as rents, mortgage payments, utility bills, council tax and court fines should be paid off first.

This is because not paying it could result in you losing your home or having your power cut off.

Once this kind of debt has been dealt with, check that you are definitely the person responsible for the credit card debt.

The next step is to make sure your credit card company didn’t break the rules when you took the card out. If they did, they could write off your debt.

This can happen, for example, if your credit card company has not done enough to verify that you can pay the installments.

If you believe your credit card company has broken the rules, please contact a Citizens Advice adviser.

If none of the above apply, see if you can continue to make your minimum monthly repayments. Failing that, contact your credit card company as they can freeze refunds for a period of time and help you rebuild your finances.