Zero percent credit cards and low APR credit cards
The British love affair with credit and their plastic cards may be coming to an end and, like many relationships painfully terminated by one party, it isn’t going to be very nice for the other partner. We’ve become comfortably used to zero percent credit cards and low APR credit cards over the last few years – with credit card rates (at least some of them) being driven down over the last decade or so as customers militated against the punishingly high rates that were standard in the early and mid nineties. Those were the days when lenders could get away with only quoting the monthly rate, bamboozling us with ‘APR’ and headline interest rate … basically anything but telling us that we were paying 25% a month, compounded on our sliver of plastic.
Truth to be told, it’s not THAT much better now, but at least it’s been possible to seek out low APR credit cards, with a slew of information on the internet and very good sites such as moneysavingexpert.com shaking their readers and demanding they go and find the best deal. There were always, of course, less savvy or less credit worthy borrowers subsidising such deals. One of the great injustices of financial life (though when was fairness ever a player in the money business) is that the poorer you are, the more you pay for credit. So, if you’re the owner of a shiny corporate business credit card, then not only are you not paying for credit … but your employer has negotiated a great deal whereby they are paying very little. But we’re not here to debate whether it’s fair that the possessor of a Coutts Credit Card is paying less interest per month than the eye wateringly 39.9% on the Vanquis Credit Card (a card offering credit to those with poor credit histories … now there’s a good idea), the party is over for all of us. moneyexpert.com this week reported that the credit card companies have turned down some three and a quarter million applications for credit cards in the last six months. Another 161,000 of us have had our cards cancelled.
Now you can try and repair your credit history, but the real issue is that the lending parameters have tightened. Their just isn’t much credit about. And if you’ve become used to living beyond your means (bluntly, that’s everyone who doesn’t pay off their balance in full each month) then the ‘no’ letter from Royal Bank of Scotland credit cards, Egg credit cards or whoever, isn’t just about putting off purchases. It’s about cutting your spending now. Not easy. And if you were one of the many who thought you were being financially savvy by ‘stoozing’ and using zero interest credit cards to constantly switch your debt from one card to another – maybe six months on the Accucard credit card then flop the debt over to the Ulster Bank business credit card and so on – then this is rather like a game of musical chairs when you suddenly realise there’s nowhere to sit.
There isn’t really a way round it, and it may be time for us to discover the relative benefits of debit and credit cards … and start only spending what we have in our bank accounts. Read more about credit card balance transfers and how to construct a monthly budget.