Credit card crunch continues

Consumers looking to fund their Christmas with their credit card are going to find the cost of borrowing has increased significantly, despite dramatic base rate cuts in the last few months, according to moneyfacts.co.uk.

Since 1 August 2008, there have been numerous increases to rates and charges on cards for new customers, including:

16 cards increasing purchase APRs
12 cards increasing cash per annum rates
11 cards increasing balance transfer fees
7 cards increasing cash advance fees
7 providers reducing the number of interest free days
4 cards increasing foreign usage fees

On top of this, some providers have slashed their 0% balance transfer deal terms, so consumers looking to reduce their outgoings may struggle to find a deal that they can repay before the 0% period expires.

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "During the past year, card companies have continued to increase the charges on their cards and consumers will find they will be stung more severely than ever before.

"Paying just the minimum is the mostly mistake many consumers can make. If you can't repay in full, then even paying a small amount over the minimum could reduce significantly the amount of interest and time to repay the debt.

"In the last three months alone, the average rate across all cards has increased from 16.8% to 17.2%. Just like on mortgages, card companies are factoring in a much bigger margin for the risk of consumers defaulting, so rates are going up rather than down.

"Many consumers will make a new year's resolution to sort out their finances. Debt transfers are one way to ensure you are paying off more of your debt, rather than just the interest.

"In the last 3 months, Abbey, Halifax, Sainsbury's Finance and Sky have reduced their 0% deals. Even more disappointing for customers is that big name brands MINT, NatWest, Royal Bank of Scotland and Capital One Bank have withdrawn 0% balance transfer deals altogether.

"Consumers can still find 0% balance transfer deals over 12 months. However, these deals are starting to reduce fast and consumers could find they have no where left to switch their debt too and will have no choice but to pay the higher APR.

"Unfortunately for consumers it is unlikely that credit card rates are going to come down, so it is more important than ever that they shop around for the best deal and find a card that best suits their needs."