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Rate Rise: What it Means for Credit Card Holders

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.

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 BalanceAdditional Interest Charges Due to 0.25% Rate Rise
£1,000£18
£2,000£36
£3,000£54
chart of additional interest on credit card with quarter point move

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 BalanceAPR rise of 0.5%APR rise of 1%APR rise of 1.5%
£1,000£36£72£109
£2,000£74£149£224
£3,000£113£227£340
chart showing impact of rate rises on credit card debt

Next Steps

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)

FAQs

When the Bank of England raises the base rate (the Bank of England's official borrowing rate), credit companies typically follow suit so your interest rate may go up.
Some credit cards will lower the interest rate on your credit card if you manage your account well over time by always paying at least the minimum amount due on time and never exceeding the credit limit. You can always ask your credit card issuer if they will lower your rate. Alternatively, you can look for a new credit card with a lower APR, but there's no guarantee you'll get the advertised APR since only 51% of cardholders will get this rate.
The interest rate on a credit card is basically the amount you'll be charged on balances that you don't pay back each month. It's payment to the credit card company for lending you the money.

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The guidance on this site is based on our own analysis and is meant to help you identify options and narrow down your choices. We do not advise or tell you which product to buy; undertake your own due diligence before entering into any agreement. Read our full disclosure here.