The Higher Cost of Repaying Your Credit Card Debt

With the rough economic times facing all of us, many consumers have been shocked to find that credit card companies and lenders have increased the cost of borrowing by charging higher interest rates. In October, 2008, for example, customers of Alliance and Leicester found that the repayment terms for their credit cards from this lender increased from the lesser of 3% of the outstanding balance or £5 to the greater of £25 or £5 in addition to the interest charges.

Making the minimum monthly payment on your credit card is very costly in terms of how much money you actually pay away in the form of interest charges. If you look closely at your statement, you will see that the bulk of your payment actually goes to pay the interest with very little of it being applied to your outstanding balance. By continuing to pay only the minimum payment, it will take you a very long time indeed to have the balance repaid in full.

Many UK residents are already struggling to make ends meet each month and meet their monthly commitments. The costs associated with essential household expenses have risen dramatically and many of them have lost their jobs due to the failing economy.

Now they are faced with further expenses by being penalized for carrying a balance each month on their credit cards. With the increase in the repayment terms, such as that of Alliance and Leicester, this will hit the pocketbooks of consumers quite hard and make it difficult for them to make even the minimum payment
American Express is one of the credit card giants that has recently increased the annual fee for their credit cards.

For one of its credit cards, this company has increased the annual fee and this has resulted in an increase of the annual interest rate by a whopping 46%. In addition, this credit card company has recently changed the repayment terms for its customers. Many of them are facing the prospect of having to make a minimum payment that is double what their payment was only a few short months ago. This change coming at a time when everyone is finding it hard to cope financially is not sitting well with consumers.

If you are one of the American Express customers with a “Life of Balance Transfer Card” you will now have to make a minimum payment of 5% of the outstanding balance. Previously the repayment terms for this card were 2.5% of the balance. Such an increase in the amount of your payment each month may be the final straw in pushing you into bankruptcy or forcing you to sell your home when you have to default on your payments. Missing payments, even for one month, is detrimental to your credit rating and this can make it difficult for you to obtain a lower interest credit card or an unsecured loan to pay off the balance.

Many have criticized American Express for this move in changing the repayment terms for credit cards, calling it a sneaky move by the company and gouging the customers. Most consumers are going to find it very difficult to come up with the money they need to make this extra payment each month, especially those who are feeling that they are already financially strapped. While American Express honors the contracts consumers signed stating the interest rate and does not raise the interest on the card, it has changed the terms under which the customers have to make payments.

This has had the greatest effect on lower income families who are already operating on a budget each month in order to pay their bills. However, even those who are managing to keep a check on their debt are finding it hard to cope with such a move by American Express.

More and more customers of American Express are looking for lower interest rate cards with more affordable terms and no annual fee. In this way they can manage to make their minimum payments without difficulty and stress and still maintain their good credit rating. Most of the credit card companies with low or zero percent introductory offers do not require you to make such a high repayment each month. In addition, with the low interest rates, you will be able to pay more money towards the outstanding balance each month so that you can get out of debt sooner than you will by remaining with American Express.

The problem that many consumers in the UK are now facing, though, is that they are in such a financial bind that they have no choice but to pay the 5% payment each month because they cannot obtain a cheaper card. This is because of the tightened credit card borrowing conditions that many companies now have in place so that those with less than perfect credit ratings would not qualify for the card.