Credit Card Rate Hikes

If you've been following the financial news lately you might have seen the reports from many credit card holders that the rates they're being charged have been raised significantly. Even worse, this might even have happened to you - but hopefully not as dramatically as with some unlucky MBNA account holders who've been hit with a frankly astonishing rate of 34.9% APR.

The pain of these rate hikes has been intensified in many cases by the timing of the rise, with it coinciding with the end of a 0% introductory period, making the leap from no interest to heavy interest charges seem even worse than it would otherwise be.

'Hidden' APRs

Customers may not even be aware of the extent of their new interest charges, as although they will have been informed of the rate increase in a 'Change of T&Cs' letter (yes, you really should read them), in MBNA's case the APR isn't shown on the monthly statement, where the less easily decoded monthly rate is preferred instead.

Account Cancellations

You may also recall that Egg PLC recently canceled 160,000 accounts, and as with the latest MBNA rate hikes, it wasn't just customers with poor credit records or dodgy repayment histories who were hit. So why are credit card companies hitting out at their customers in this way?

Credit Crunch

You can't fail to have heard of the global credit crunch, where banks and other financial institutions are finding it increasingly difficult to borrow money to finance their lending operations. Couple this with extraordinary levels of bad debt caused by over-enthusiastic lending coupled to a worsening economy, and things are looking grim for financiers.

Card issuers are trying desperately to limit the damage, both by reducing their risk profiles, and also by making more profit from existing customers. Thus, the rate rises work for them on two levels: if a customer accepts them more profit will be squeezed from the account, while if the customer jumps ship and closes their account, the credit company has recovered some of its lending and so has a reduced potential exposure. Bearing this in mind, it's clear that the card issuer's claims to be only increasing the rates of sub-prime customers should be taken with a large grain of salt.

If You've Been Hiked

If you're one of the unfortunate people hit with a rate rise, you need to consider whether the new rate is acceptable, even if unwelcome. Plainly, a card charging 34.9% APR is far too expensive for anyone with any sort of credit rating, but if your new rate is only a few per cent above your old one, it might just be something you have to live with in today's market conditions.

However, you may well feel that it's time to take on a new balance transfer card with either a 0% deal or a long term low rate offer. Either way, you may find that this is more difficult today than over the last few years, as approval rates for new cards have dropped considerably.

Alternatively, now may be the time to grasp the nettle and get rid of your credit card debt altogether, by taking out an unsecured loan in a process of debt consolidation. Be sure though that you don't take out a secured (homeowner) loan for this, as converting unsecured debt into a debt that could cost you your home is a risky move at best.