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Beware introductory rates! Full credit card costs revealed

Do you know the total cost of borrowing money on your credit card? If you're not careful, you can find yourself paying back far more in interest than you expect. Especially if you get caught by introductory or promotional rates.

Credit card companies often lure you in with low limited period introductory interest rates. These deals can be so low, you might not even have to pay any interest on your borrowing to start.

But once the introductory period is over these usually increase considerably. The average credit card APR (Annual Percentage Rate) is now a record 20.6%, according to the latest data from Borrow £1,000 at that rate for a year and it would cost you a huge £206.

If that sounds unaffordable, there's no need to panic yet – with a bit of careful discipline, credit cards can still be considered a safe, secure way to spend.

Here is your credit card 101, to make sure you don’t get yourself into a spiral.

Credit cards – what you need to know

Understand APR (Annual Percentage Rate)

All credit cards advertise a representative APR. This is the percentage rate of interest that most people (at least 51%) are offered when they apply for a credit card.

APR tells you how much your credit card provider is charging you for credit, It includes the actual interest rate and any monthly or annual fees.

You may be offered a low or even 0% interest when you first get your card. This doesn’t mean you can be complacent, as it's likely to be for a limited period.

The APR usually increases considerably when you’re at the end of your introductory rate. so it is always best to aim to pay off any outstanding balance before the introductory period comes to an end. If you don't think you can do that, you can search for a new offer.


Make more than the minimum payments

When you get your credit card statement you will be required to make a monthly minimum payment, normally a percentage of the amount you owe. But beware! This may seem like an easy way to pay back your credit bit by bit, but it’s not quite what it seems.

If you only pay the minimum amount each month, you’ll pay interest on everything left over (once any introductory or promotional periods are up). Plus if you're only paying a percentage, that will get smaller each month. Both mean it’ll take longer to pay off your debt, and you’ll end up paying a lot more than you borrowed.

The best option is to pay back as much as you can afford each month.

Balance transfers

A balance transfer means moving your debt from one credit card to another. Banks often offer special introductory interest rates - sometimes as low as 0% - for balance transfers that last for a limited period. Again, aim to pay off any outstanding balance on the card before the introductory period ends.

Make sure you make any payments on time. Miss any and you will risk having any introductory rates being withdrawn and you could also be hit by extra fees or penalties.

You will also usually have to pay a fee for a balance transfers on to your card. This is usually around 3% of the balance you are transferring.


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