How much are you paying to cover your credit card’s interest rate?

How much are you paying to cover your credit card’s interest rate?

Credit cards are almost a necessity for every British household. According to a recent survey, the average loan for a British home is £6,020, and that doesn’t include mortgages just yet. This amount mere pertain to the credit card debts or the personal debts of most adults living in the United Kingdom.

Credit cards prove to be very essential when buying high ticket items or for emergency purchases. However, not many people understand that credit cards also offer the highest annual interest rate among all other types of financing options. The average interest rate on UK credit cards stands at 19.1% annually – and that’s regardless if they are offering freebies, rewards, and promotions like the very popular 0% interest rate.

The thing is, not all credit card holders know that they are paying that much each time they use their cards. Many financial institutions, if not all, divide the interest rate into a 12-month period to make it appear lower. So by dividing 19.1% by 12 months, the monthly rate is just a little bit over 1%. That’s the rate they are promoting. Little do credit card holders know that the 1.6% interest rate compounds monthly. And that it will balloon to 19.1% or even higher each year.

To keep yourself from paying 19.1% and just stick to the 1.6%, you have to pay your entire outstanding balance each month. However, the same survey showed that only 29% of credit card holders do that. As much as 47% merely pays off the minimum monthly balance. They are the ones who are most likely to max out the 19.1% interest on their purchases.

Using a graphical illustration, if your credit card balance is £6,020 and you choose to pay only the minimum balance every month, you will shell out as much as £2,924 in interest alone! What’s more, it will take you almost five years to pay off your debt.

It is then strongly advised that all credit card holders to be more wary about the effective interest rates that their card bestows and before it gets too much always seek some debt recovery advice. Sadly, only 56% of credit card holders in the UK fully understand how much interest their credit card balance accrues each month and don’t realise how they arrived at that rate until its too late.

To be freed of the staggering interest on credit cards, debt consolidation is a very good option. Debt consolidation companies offer a very low interest rate of only 4.7%, which is a far cry from the 19.1% offered by credit card companies. It remains to be the best option to clear off your credit card debts. And doing so won’t take you five long years to finish.

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3 Responses to How much are you paying to cover your credit card’s interest rate?

  1. […] @ Wild About Finance writes How much are you paying to cover your credit card’s interest rate? – How much are you paying to cover your credit card’s interest rate? Credit cards are […]

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