The interest on your credit card could soar

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As one credit card company transforms the way it calculates interest rates, your repayments could increase dramatically.

Halifax to give its customers personal interest rate which will follow the Bank of England Base Rate.

Millions of Halifax credit card customers will see their repayments linked to the Base Rate this year. From August, Halifax will decide every customer's personal rate based on how risky it thinks they are. This 'personal rate' will then be added to the Bank of England interest rate. So when interest rates go up, your credit card rate will increase as well.

Basically, the interest you pay on your credit card will work in the same way as if you were on a tracker mortgage.

So what does that mean? Well, with the Base Rate at 0.5%, interest rates can only go up which means customers will face unappetising repayments if the Bank of England decides to hike the Base Rate or miss any repayments.

Put simply, you could easily work up a credit card debt if you’re not diligent or don’t fully understand how your credit card works.

However, this isn’t the only instance when ignorance of the credit card industry could get you into financial trouble.

Before taking out any credit card, it’s essential you learn all the facts, pay attention to interest rates and take note of when the eye-catching offers end.

Low interest rates can change

These offers seldom last long. I'm sure you've received attractive offers lately but did you take a good look at them before you signed up? Often you will find a disclosure box towards the bottom of the document. Hidden amongst other jargon you will find expiry dates as to when the offer ends and the penalty you will incur if you fail to keep up with your payments. Remember, the low introductory offer may be void if you make a late payment.

An important thing to note is that when companies try to increase your rate, you have the right to refuse the price hike, so know your rights as a consumer.

Keep an eye out for what the rate will be. Often, after companies lure you in, rates will revert to unappetising figures.

Minimum payments can cost you more

I'm sure you've all heard the importance of paying off your debt at the end of every month and being able to achieve this takes planning. Basically, the idea is that you only buy what you can afford.

The issue is that not many people adhere to this rule and the credit card companies know this, which is why they are willing to increase your spending limit.

Skipping payments all together may seem like a minor transgression, however, it could be a costly credit card blunder.

It's not in the credit card companies' best interest for you to pay off your card at the end of the month because if you do, they receive no money. This is part of the reason rewards cards work for them -they may offer cashback and airmiles but if you don't pay off the balance you could be paying interest rates as high as 22%. You may as well have bought your plane ticket for full price as it would have cost you less in the long run.

Paying the minimum payment is exactly what credit card companies want form you, this way they get interest on your debt and set you up for a long repayment schedule.

Withdrawing cash can be expensive

Unless you are in a serious financial bind, it is not advisable to withdraw cash on your credit card. Most credit card companies will charge you much higher rates for cash withdrawals rather than purchases.

You won't outsmart them

Each year credit card companies spend millions studying your habits and analysing your spending in order to separate you from your hard earned cash. They believe that you will spend more on a credit card than when you pay cash because you don't feel the loss as quickly.

You may think that you are being wise by signing up to rewards schemes but in reality, you may be adding an unnecessary risk to your life.

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**

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