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Credit card interest rates on the rise – 5 ways to cut the cost of your debt
Credit card holders who fail to pay their statement in full could be paying the highest interest in more than 27 years, according to Bank of England data.
The average interest rate that households are paying on credit cards hit 23.8% in October – up from 21.83% compared to the same month in 2022.
Here, Which? takes a look at how credit card interest has changed and what to do if your credit card debt is getting too expensive.
How have credit card interest rates changed?
The graph shows how the interest rates being paid on credit cards have changed since July 1995 – based on Bank of England data.
Credit card interest rates remained relatively flat and under the 18% mark between December 2014 and the end of 2017, but have been rising steadily since March 2018.
In the past 12 months, the average interest rate charged on credit cards has risen from 21.83% in October 2022 to 23.8% in October 2023. The credit card interest that households pay hasn't been this high since December 1995, when the rate was 23.01%.
It's not just interest rates that are going up. According to the banking trade association UK Finance, there were 374.5m credit card transactions in July, which is an 8.5% increase from July 2022, and the total spend was 10.4% higher than a year ago.
Outstanding balances on credit cards have grown 8.7% over the 12 months to July, and 49.9% of outstanding balances incurred interest.
- Find out more: how is credit card interest calculated?
How to cut your credit card interest
If you're stuck paying hefty interest on your credit card balance each month, here's how you can cut the cost.
1. Shift debt to a 0% balance transfer credit card
If you're paying interest on credit card debt, think about moving it to a 0% balance transfer deal.
These allow you to freeze the interest for a set period – giving you the chance to pay the debt down faster and save money, as all your payments will go towards the debt rather than the debt and interest.
When it comes to a 0% balance transfer credit card you need enough time to clear your debt and to do it as cheaply as possible, as most of these cards charge a balance transfer fee.
You can find out the market-leading deals in our guide to the best 0% balance transfer credit cards, as well as the one deal that has met our strict criteria to be made a Which? Best Buy.
2. Consider a low-interest credit card
A low-interest credit card is a deal that comes with a relatively low rate on purchases and/or balance transfers for as long as you have the card.
The very best low-interest deals charge as little as 10.9% APR, offering a cheaper way to borrow or shift debt whenever you need it and no need to switch cards because an introductory deal has expired.
You can compare market-leading deals in our guide to the best low-APR credit cards, and find which four cards have been crowned Which? Best Buys.
3. Up your monthly repayments
If you don’t want to apply for a new credit card, see if you can increase your repayments. A simple change you can make is to opt for a fixed payment rather than just the minimum payment.
That's because the minimum payment is usually charged as a percentage of your remaining debt, which means it reduces as your balance goes down. For example, a minimum repayment of at least 2% on a debt of £500 is £10, but once your debt gets to £400 your minimum repayment falls to £8.
By having a fixed payment you can ensure you are putting the most you can against the debt and paying it off sooner. So just opting for a £10 fixed payment can help.
- Find out more: credit card repayment calculator
4. Pay off the most expensive card first
You might find when you look at all your credit card debts together that one credit card is costing you more than others.
If you have a 0% deal with seven months left and a card charging 23% APR now, it's worth trying to clear the more expensive debt first.
5. Ask your provider for help
If you're struggling with repayments, it's also worth contacting your provider to see if it can offer any help.
Banks are obliged to send letters to customers who have been in persistent debt for 18 months, warning them about the cycle they're in.
Then, 18 months later, credit card providers must offer customers a method of repaying their balance over a reasonable period. This could be by reducing or waiving interest rates or charges.
Just bear in mind that lenders also have the ability to suspend your card to stop you from borrowing.
- Find out more: free debt advice contacts
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