All posts tagged UK

Smart Strategies to Eliminate Your Credit Card Debt

By blogger on

The excitement of making just the minimum payment on your credit card balance only lasts a while. Millions of Brits, who carry a balance, discover the danger of minimum payments after they feel the sting of the accompanying rotating charge. According the latest statistics, the average UK household owes 6,020 in debt. Such a debt would take 291 months to pay off and cost 8,453.00 in interest if you paid only the minimum payment.

Even if you had a legitimate reason for accumulating high-interest debt, your top priority must be to pay it off. Start with a solid debt reduction plan and stick with it until you’re debt free. Here are five strategies for eliminating credit card debt.

Target one card at a time

If you owe money on multiple cards, it will take a while to wipe out all the debt. It’s hard to see the horizon and stay motivated when you have years of credit card payments ahead of you. Give yourself a boost by paying off one card. Target the card with the lowest balance and put as much money into your payments as you can afford until you’ve cleared the balance.

Alternatively, you can target the card with the highest utilization rate (your balance/card’s limit) and pay it off. Clearing the balance will give your spirits and your credit score an instant boost since credit utilization directly impacts your score.

Negotiate a lower interest rate with your creditors

Although lenders are usually reluctant to negotiate reduced interest rates, it’s still worth a try. If you have a decent credit score and have been responsible with your payments and card use, the lender might consider your request. Reducing your interest by one or two percentage points can lead to hundreds of pounds saved every year. Compare rates and get offers from competing lenders to bring to the negotiation. Your lender might the willing to match the offer.

Take note: Your creditor will need to review your credit report before they make a decision, and they could reduce your card’s credit limit if they don’t like what they see.

Transfer your balance

A growing number of consumers are surfing their credit card balances from one card to another in order to get the best interest rates. While that could potentially lead to hundreds of pounds in savings, there are risks involved if you don’t plan ahead.

Balance transfers are only effective if you commit to repaying the transferred balance within the introductory low rate period. That will give you 12-30 months, depending on the card. After that, the rates will go up, and you’ll be forced, once again, to pay high interest rates.

Important: Balance transfer cards should only be used for paying off debt, not making new purchases. So don’t use the card for shopping, as the low interest rates may not apply to new purchases. Also, most lenders charge a balance transfer fee, so factor that into your costs when you’re comparing cards.

Get a loan

If you’re falling under the burden of high interest rates, consider borrowing money to pay off your cards. Your friends and family may be willing to help. But if not, banks and peer-to-peer lenders offer loans with fixed interest rates that are 20-30 times lower than credit cards. That means you could save hundreds in interest on your debt. If you have excellent credit and a stable salary, you could qualify for loans with competitive interest rates.

Pay the minimum

If you’re cash strapped, you can always pay the minimum, but try to make two minimum payments within the month. Interest is accrued on a daily basis, so earlier payments will reduce your average daily balance and your interest charges. Keep up with the minimum payments twice a month until your debt is paid off.

Spiraling interest rates make it a challenge to pay off debt. Ideally, you should not incur it in the first place, but life is all about learning from your mistakes. The tried-and-true methods listed above should help you to develop your battle plan for tackling your debt. Remember, the most valuable instrument in this battle is your commitment to your financial goals.

Consumers Could Pay More if the European Commission Caps Credit Card Fees

By blogger on

The European Commission (EU) has threatened to cap the credit card processing charges that banks impose on businesses and shops. In turn, the banks have threatened to add higher fees and other charges onto cards used by consumers. When it all finally boils down, it’s likely that UK households will take another hit in their billfolds.

As it stands now, credit cards like MasterCard and Visa charge businesses a 0.9 percent charge on all credit card purchases. This credit card fee costs businesses 850 million annually. The charge in debit cards is 0.2 percent. The EU wants to set a flat service charge fee of 0.3 percent.

On further examination, this matter gets more complex. The fees that businesses pay to banks are known as interchange fees. These fees cover the bank’s costs of processing credit card transactions such as fraud insurance and administration. Shops and businesses give banks different interchange fees based on size. Big retailers generating tons of sales tend to pay a smaller interchange fee. A mom and pop store will pay a larger interchange fee. These fees can vary from 2.5 to 0.1 percent.

The European Commission (EC) estimates that this fee payment market has a value of 112 billion. The EC is laying out the argument that the credit card sector is expensive and fragmented. Retailers tend to agree with the EC opinion. The British Retail Consortium (BRC) has been hammering the EC for a decade to end what it calls excessive and anti-competitive fees for processing credit cards. The BRC argues that consumers will benefit via lower prices if the fees are capped. At present, retailers eat these fees and charge them back into the business.

“We’re delighted with this landmark proposal,” said Helen Dickinson, the BRC director. “Capping these excessive and anti-competitive fees will support the UK retail industry by 362 million a year, boosting the industry’s ability to invest and innovate while continuing to deliver lower prices and value for customers,” Dickinson added in an interview at Daily Mail.

MasterCard Europe contends that if this EC cap goes through, consumers will be hit with a 25 annual fee per credit card. Marion King, president of MasterCard, warned that lower fees will result in less income for issuing banks, and that will force banks to charge consumers for using cards.

The EC fee proposal will force credit card companies to separate their payment card schemes from the business division that processes transactions. Essentially, this would destroy the current credit card model. The Financial Times (FT) describes this matter as the final battle in the long war between EU bureaucrats and payment providers. The Commission proposal calls for a 0.2 percent cap on debit transactions. Credit card fees would be capped at 0.3 percent. The EC estimates that EU debit card fees will be cut to 2.5 billion from 4.8 billion. Credit card fees will tumble to 3.5 billion from 5.7 billion.