GBP 3,734: The average amount owed by British adults in unsecured debt (such as credit, personal loans or overdrafts) is £3,734, of which £1,067 is the credit card balance.
24 years and nine months: The time required to repay the average credit card debt. The minimum monthly repayment amount is monthly interest plus 1%.
These are the insights from the latest version Currency statistics From money to charity.
If the upcoming rate hike goes as expected, you can rest assured that both numbers will increase.
The Bank of England expects to raise interest rates from their final all-time low
The Bank of England maintained its benchmark interest rate at a historic low of 0.1% in order to encourage continued economic activity during the unprecedented pandemic era. However, the inevitable result of such low interest rates is that inflation has begun to climb. Coupled with other factors such as the soaring energy costs that the UK is currently experiencing, this situation is even more irritating.
One monetary policy lever used by the Bank of England to reduce inflation is to raise the base interest rate, which is the interest rate that commercial banks pay when they borrow from the central bank.
And this is exactly what is expected to happen at the next Monetary Policy Committee meeting on November 4.
Market observers predict that interest rates may rise to 0.25%, bringing interest rates back to pre-pandemic levels, and warn that we should expect more interest rate hikes in the new year.
Interest rate hikes hit where debtors are hurt
Banks usually pass on interest rate hikes to customers. While this is good news for savers who will earn more interest from their reserves, those with personal unsecured debt will face heavy losses.
Mortgages or secured personal loans are less affected, because these agreements usually have fixed interest rate clauses. But for those with credit card debt, loans or overdrafts, this means that higher monthly or weekly interest will be used for the balance. If your debt repayment commitments are already stretched, this may cause additional pressure.
So, if you are already heavily in debt, how will you prepare for the inevitable interest rate hike?
3 strategies for dealing with debt before raising interest rates
- Mobile credit card balance: there are many Credit card with 0% balance transfer, There is about 3% balance transfer fee. The offer will depend on your credit score. You will be able to transfer your balance from the high-interest card to the 0% interest introductory period, giving you time to repay your initial debt without having to pay more interest. If you meet the conditions, this option can quickly win before raising interest rates.
- Cancel credit card: If the bank decides to pass on the increased fees to their customers (and we definitely want them to do so), they must provide notice. Credit cards allow you to reject their proposed new interest rate, cancel your account, and pay off your outstanding balance at the current interest rate within 60 days. Of course, this is only feasible if you have funds available to settle your balance within a given window, but by doing so, you will save some pounds over time to increase interest payments.
- Budget carefully to reallocate funds: Make sure you know the interest rate on each debt, if necessary, first reallocate the budget to the highest interest account and then calculate it your own way. However, I will not go below the minimum payment amount and, if possible, make additional payments to the highest interest account first.
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