Debt Consolidation Credit Counseling In Phoenix

The Bank of England may have given UK PLC an economic boost with its recent interest rate cut of 1.5%, but the credit crunch isn't just affecting big business and the banking sector. The average person in the street is feeling the squeeze too. So will the reduction of the base rate to 3% offer any short-term relief to the customers holding a total of 72 million credit cards, beleaguered by interest charges far and above the base rate?

While mortgage borrowers will have to wait and see if the trickle-down effect reduces the cost of their mortgage repayments, credit card customers have been warned not to expect repayments to fall. Consumers look set to continue to pay an average of 17% APR on credit cards, and that percentage is unlikely to change as a result of the rate cut. The common opinion is that rates are only cut to attract customers, and in the current economic climate, lenders are reluctant to encourage even more credit into the system. Even though the lenders would like to pass on these savings to their customers, in the current economic climate those savings may have to wait a while until the market is more stable.

The lenders are concerned at exposing themselves to more 'bad debt', as cardholders struggle to meet repayments in the worsening economic climate. As a result, the card companies are not passing on the rate cut to their customers, despite Government attempts to boost the economy at ground level through fiscal policies that often seem to be knee-jerk reactions to the latest headlines. As a result, the credit card market looks set to be the next target of Gordon Brown and his Chancellor, as the Government calls for a ?new, responsible approach? to lending.

Some of the worst offenders are store cards, although the average credit card APR rate has risen to 17.6% today compared to 16.8% a year ago. Store card rates have risen sharply - up 1% in just six months - with some of the most expensive store cards now charging customers an APR of 30%. This is despite the base rate almost halving in the same time frame; from 5.75% in 2007 to 3% today. Government officials have been angered by the apparent intransigence of card lenders to reduce their rates, accusing them of behaving "irresponsibly". In return, credit card lenders remain steadfast in their more pragmatic 'wait and see' attitude, claiming sweeping reductions in the card APR rates could actually make matters worse for the financial sector as a whole, and consequently for consumers as well.

The credit card lenders, concerned by the potential of exposure to 'bad debt', are tightening up on their approach to business, making sure that customers take full responsibility for their loans. It can take only a couple of missed payments for a customer to be at the receiving end of strict enforcement of payment orders, but card companies do understand that everyone is being hit by this crisis, and will do everything they can to help people out. This isn't some good-natured, altruistic approach - it's good business sense. Minimum monthly repayments barely cover interest charges and administration fees. The Citizen's Advice Bureau has said that 20% of all new debt inquiries in 2007-08 have concerned credit card, store card and charge card debts. The Consumer Credit Counselling Service agrees; they have seen a surge in 'charging orders' enforced by card firms in the same period. Card lenders in return have made changes to their customer support policies, being much more proactive in helping those who do get into difficulties tackle the problems much earlier, reducing the overall burden.

In the US, interest rates on credit cards have echoed base rate cuts, but this is unlikely to happen in the UK any time soon, despite only a 2% difference in the base rate between the two countries. Lenders point to regulations, such as the decision by the Office of Fair Trading in 2006 to cap penalty fees to 12 as responsible for their woes. They also earmark their own falling profits on payment protection insurance as a primary factor in their inability to reduce card interest rates. The card lenders are trying to maintain a critical balance at the most direct contact point that most consumers have with the financial world, and despite the nay-sayers, there are still very attractive deals to be had on credit cards, if you're prepared to do your homework.