Beat rising credit card rates

Average credit card interest rates this week reached their highest level for four years. Here's how to fight back and save yourself hundreds of pounds.

If you own one of the 66 million UK credit cards in circulation, you could be in for a nasty shock when your next statement arrives. New figures from the Bank of England show that the average credit card interest rate rose to 16.28% during December - its highest level since September 2006.

And the bad news doesn't end there. With the Bank of England base rate at an all-time low of 0.5%, the new increase means that the gap between the official base rate and the average rate charged on credit cards is the highest on record.

The price hikes have come despite an ongoing Government review into the regulation of credit and store cards, aimed at making charges more transparent and strengthening consumer safeguards. All of which suggests that, if you're not happy with your card provider, it's time to shop around for a better deal.

Vote with your feet    

The headline figures, of course, don't tell the whole story. With UK banks still nursing massive losses from the credit crunch and facing new rules on card charges, it seems they've found a source of income to help them balance the books - existing cardholders.

Figures from consumer group Which? show that 64% of card providers increased their rates and associated charges during 2009, with many loyal customers seeing the rate on their plastic climb as high as 29.9% APR - a figure more typical of store cards.

A Daily Mail investigation last month revealed that many Capital One customers saw rates soar by as much as 7 percentage points, with some customers being charged almost 40% APR. Other providers who have been named and shamed include MBNA and majority state-owned RBS.

And the sneaky tricks don't stop there. Minimum repayment thresholds have slipped to just 2% - which means if you only pay off the minimum on your card each month, your debt will grow at a faster pace. Throw a rise in cash withdrawal fees into the mix and it's no wonder that a recent survey found that more than a third of all card-holders are dissatisfied with their providers.

So, surely it's time to take the plunge and switch to a better deal...?

Be prepared

Figures show that only four out of 10 applicants are accepted for the best credit card deals - i.e. the "typical rates" advertised, so you need to do some preparation if you want to be among the lucky 40%. First of all, if possible, pay down any debt you can before you apply - a reduced total credit card balance will boost your chances of securing the best deal.

Second, it pays to check your credit rating, as many card issuers have tightened up their lending policies. You can check yours for free with a trial of our Credit Expert service - be warned, however, that even a good credit rating may not guarantee you're accepted.

Third, think about how much you can realistically afford to pay-off each month before opting for either a card that offers 0% interest for a limited time or one that offers a low rate of interest over the long-term. If you'll struggle to clear your debt within a 12 to 16-month interest-free period - this is the period over which most decent 0% balance transfer deals last - you may be better off with a card offering around 6% APR as standard instead.

Lastly, look closely to see who is actually issuing your card - there are well over 100 companies and charities that offer credit cards, but there are fewer than 12 actual card issuers. These card issuers operate card schemes on behalf of other banking brands, and usually they won't let you have another of their cards, even if it's under a different brand. So, for example, if you hold an HSBC credit card, you'll be unlikely to secure one from First Direct or M&S Money, as their cards are issued by HSBC. Find out more here.  

Credit card best buys  

For balance transfers, the Virgin Money card offers 0% for a market-leading 16 months. The transfer fee is 2.98% of the sum transferred. But note the rate climbs to 16.6% APR at the end of the 16 months.

Another worthwhile deal is the Barclaycard Platinum offer - this card offers 0% on balance transfers for a calendar year, and comes bundled with contactless payment technology. It also has one of the lowest balance-transfer fees on the market, just 2.5%.

Alternatively, the Barclaycard Gold Visa also offers interest-free balance transfers for one year with a lower credit acceptance threshold - but be aware that the rate jumps to a less-competitive 19.9% APR once the offer period ends.  

Elsewhere, the NatWest Platinum and RBS Platinum cards both offer 0% on balance transfers for 15 months.

If a card that offers a permanent low-rate of interest better meets your needs, it's worth looking at the MBNA Platinum Low Rate Visa, which offers 6.7% APR on balance transfers with no fee (if completed in the first 60 days of opening). Another worthwhile deal is the Barclaycard Platinum Simplicity Visa, which offers 7.8% APR on balance transfers for the life of the balance. Again, there's no balance transfer fee.

Get help from lovemoney.com

If you need a bit of help controlling your credit card debt, we can help.

Our fast credit card search can help you compare all the best deals on the market

Next, adopt this goal: Pay off credit card debts

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips on making the most of your plastic?

More: 12 brilliant balance transfer cards for 2010 | Slash your credit card debt in four simple steps