Has the interest rate gone up on your credit card? We've done the math for various scenarios to see what a rate rise means for your credit card debt and how much extra interest you'll pay.
- How Will the 0.25% Interest Rate Rise Affect my Credit Card Payments?
- What Happens if Rates Continue to Rise?
- What Should You Do Next?
Impact of Interest Rate Rise on Credit Card Payments
Those struggling to pay their credit card debt are particularly vulnerable to interest rate rises, and credit cards are usually quick to raise interest rates in line with the Bank of England. How will a future increase affect your finances?
Let's take an example. If a cardholder has a £1,000 credit card balance on a card charging 19% APR, a 0.25% interest rate rise means an extra £18 would be owed over time assuming the cardholder only pays the minimum payment each month (approximately 2.5% of the remaining balance).
|Outstanding Balance||Additional Interest Charges Due to 0.25% Rate Rise|
Those who pay back their full balance on time each month won't be affected by the interest rate rise.
What Happens if Rates Continue to Rise?
If the Bank of England continues to raise rates, the impact to future interest payments will be even more significant. The following table shows how much additional interest you'd owe due to a rate rise of 0.5%, 1% or 1.5% from a starting APR of 19%, for a variety of starting credit card balances.
|Starting Balance||APR rise of 0.5%||APR rise of 1%||APR rise of 1.5%|
Credit card debt is generally expensive, especially if you're on a credit builder card (as they charge higher-than-average interest rates due to the higher expected risk of offering credit to someone with a worse credit rating). If you're carrying credit card balances from month to month, there are a few steps you can take to reduce your debt burden:
- Consider moving existing credit card balances to a 0% balance transfer credit card
- Temporarily reduce any non-essential expenditures (if you have any) to save money for paying down credit card balances
- Consider taking out a personal loan to pay off your credit card balance (but only strong credit ratings will get the lowest interest rates)