It has recently been announced that credit card rates have reached their highest in thirteen years, even though the base interest rate remains at its all time low of 0.5 percent, where it has been for nearly two years. Many borrowers may have thought that this would equate to more affordable borrowing on credit cards but the only purpose it has served is to widen the gap between the base rate and the average credit card borrowing rate.

There is now a massive gap of 18.4 percent between the base interest rate and the average credit card borrowing rate, which is going to put huge financial strain on many households who are already struggling with issues such as the VAT increase, job losses and pay freezes, higher living costs, and restricted borrowing conditions.

It was in 1998 when the average credit card rate was last this high, and at that time the base interest rate was higher, so the gap between the two was not as wide. There is around £52 billion outstanding on credit cards in Britain in total, and with interest added at a rate of 18.9 percent almost £10 billion a year extra is added to this. Credit card firms insist that they have to increase the rate of interest in order to cover increased risks in the current climate and to cover bad debt.

With this in mind consumers may fare better by looking at alternative forms of borrowing rather than having to go for high rate credit cards. There are many other credit cards that are available where such high rates of interest are not charged, such as interest free purchase credit cards or 0 percent balance transfer cards for those that have existing balances on high interest credit cards.

Consumers can also look at other forms of borrowing to help them to avoid the extortionate rates that are being charged on some credit cards, such as a low rate personal loan.

Whilst many consumers and campaigners are angry about the high rate of interest the UK Payments Council has backed credit card firms, stating that credit card interest rates should not be compared against the base rate.

A spokesperson from the group said: ‘A credit card APR is not an interest rate as it is obliged by legislation to reflect the total cost of credit. Even when interest rates are low, the costs of fraud, bad debt and operating an unsecured open-ended line of credit continue.’

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