Credit card firms need to be reined in

I’M delighted to see that the Financial Conduct Authority are going to bring in new rules later this year forcing credit card companies to intervene and help their customers who have longstanding debt with them.

Every day I get asked questions about clearing credit card debt by people who seem to be in a never ending debt spiral where payments each month only ever seem to be going to cover interest costs, with capital balances hardly reducing at all, and in some cases actually increasing where monthly payments are not even enough to cover the interest that is due.

It’s a hugely depressing situation to be in, and it’s almost criminal that it has been allowed to happen for so long. The Bank of England base rate is at an almost all time low and there are still millions of people paying interest rates as high as 30 per cent APR on their credit cards and store cards.

I read that if you owe £3000 on your credit card with an interest rate of 19 per cent and only make the minimum payment of £70 per month or so, then it could take you more than 25 years to pay off the loan. That’s longer than the time it takes most people to pay off their mortgage.

Of course, the minimum monthly payment reduces as the outstanding balance reduces, which is why it takes so long to repay in full. If you started with a payment of £70 per month and maintained that payment regardless of the minimum, then you could clear the balance in just over five years, at around one-third of the total interest.

So while it’s important that credit card companies intervene to help their most distressed customers, it’s also important that they are forced to look at the way they charge interest on their credit cards, and the way they communicate the effects of these different repayment rates on the total interest payable.

And it’s vital that there is a limit applied to the interest rate that they are allowed to charge.