Martin Lewis issues credit card warning for millions after ‘under-the-radar change’ – you could pay DOUBLE interest
MARTIN Lewis has issued an urgent debt warning for Barclaycard customers.
It comes just weeks after The Sun exclusively revealed that the lender was slashing a key fee.
Martin Lewis‘ fresh warning comes ahead of the changes.
Barclaycard is shaking up how it calculates the minimum repayments customers must make on their credit card bill each month from July.
The lender will be changing from a tiered structure, where customers may have to pay anywhere between 2.25% and 4.25% of their overall balance, to one that calculates repayments based on each individual customer’s circumstances.
From July 22, customers will pay the highest of the following each month:
- 1% of the customer’s main credit card balance
- 1% of the customer’s main balance plus any interest, default fees or account fees
- The customer’s total outstanding balance, if this is less than £5.
The new structure is understood to apply to all Barclaycard customers, resulting in 80% of customers’ monthly repayments either reducing or staying the same.
Reacting to the news, Martin Lewis, founder of MoneySavingExpert.com, said: “This is a worryingly under-the-radar change by the UK’s biggest credit card provider.
“Changing minimum repayments looks innocuous, even trivial – most customers will, I suspect, have ignored it.
“Yet this seemingly technical and bland change is a huge danger signal. I wish I could light up the sky with neon signs shouting that, for those unaware, if paying interest on their credit card debt, it can easily double the total cost of debt by the time you clear what you owe, meaning you pay £100s or £1,000s more.
“Minimum repayments have always been credit card firms’ secret weapon.
“Letting people repay little looks appealing – hence why Barclaycard says this is about ‘flexibility’.
“Yet it takes flexibility to kick your own backside, and this will hurt some just as much.
“Barclaycard’s reduction, for many, from 3.75% of the balance to 1% of the balance – means while people’s repayments will cover their interest, they will clear far less of what they owe, prolonging the debt, keeping people indebted year after year after year, and the interest racking up year after year after year.”
The change will essentially mean that many customers could end up paying far more over time as they will be clearing their balance more slowly, meaning more interest is being added.
The bank will also be changing how much APR it charges some customers.
APR is the total interest rate you pay back over the course of a year, so an increase to a customers’ APR means they will end up paying more back in interest.
While Barclays said the majority of customers will see their APR stay the same or go down, The Sun understands some customers on “historic rates” will see an increase to their APR of up to 9.9 percentage points.
However, customers affected will still pay lower rates than new Barclaycard customers, and 97% of them will have less than £10 added to their monthly interest.
Barclays has more than 36million customers including both current account and credit card users.
This means millions of customers will be affected by the changes from July.
A spokesperson for Barclays told The Sun: “We regularly review our products and from July, some Barclaycard customers will see changes to their minimum monthly payments, alongside adjustments to the APR.
“Customers will benefit from a reduction in their minimum monthly repayment and the vast majority have no change to APR, while some will receive a decrease.”
What does this mean in practice?
THE Sun's consumer reporter James Flanders gives his verdict on Barclaycard's fee shake-up and explains how it affects you.
Barclaycard’s change to its credit card repayment structure sounds great if you don’t dig into the details.
After all, Barclaycard says it’s “making the changes to give you greater flexibility each month”.
In practice, it means that if you can’t afford to pay off your balance in full at the end of each statement period, you can repay much less under the minimum repayment option than you have done previously.
If you only pay the minimum amounts on occasion, this is super useful.
But if you rely on this type of repayment plan in the long term, it could wreak havoc on your credit file as it’ll take you much longer to clear your debt.
And it won’t just prolong the time people are in debt.
More interest will be applied to your outstanding balance too as less is paid down each month.
For example, if you have a balance of £5,000 on a Barclaycard at 24% interest, where you only make the minimum payments and don’t spend on the card.
Under the old “2.5% of the balance plus the interest charged” rule, it would take around 14 years to clear the balance.
In total, you’d expect to pay about £3,500 in interest.
But with the new “1% of the balance plus the interest charged” calculation, it will take over 30 years to clear the same balance.
You’d then end up paying a whopping £8,500 in interest.
Before taking out a new credit card or increasing the amount you borrow, it’s vital to consider the consequences.
Borrowing sounds like a simple way to help pay bills – but beware of falling into debt you cannot pay back.
It’s always vital to ask yourself if you actually need to borrow before committing to a new credit card, personal loan or overdraft.
If you cannot afford to pay off debt you already have, you should avoid at all costs taking on any more.
If you use a credit card, I’d recommend that you always pay off your balance in full at the end of each statement period.
Should I pay more than the minimum?
The minimum credit card repayment each month is the minimum amount you can pay off your outstanding balance without being hit with late fees or a poor credit rating.
This is usually a percentage of your overall statement or a specific amount, whichever is greater.
It’s really important to pay at least the minimum repayment amount each month to avoid damaging your credit score or racking up additional charges.
But experts warn that only paying the minimum can lead to paying back far more to the lender than you borrowed due to the interest added.
So, if you can afford to pay extra you will be saving yourself cash long-term.
The best way to avoid interest altogether is by paying off your total credit card balance every month. By doing this you won’t be charged any extra fees.
How to get free debt help
THERE are several groups which can help you with your problem debts for free.
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800138 1111
- National Debtline – 0808 808 4000
- Debt Advice Foundation – 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write-off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.
Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “If you’re carrying credit card debts, don’t stick to the minimum repayment.
“Draw up a budget, work out where you can squeeze a little extra cash from your spending, and pay your debts off as quickly as you can afford.”
Remember that banks can always increase the minimum repayments they demand each month too, so factor this in before taking on credit card debt.
How to get the best credit card deals
It pays to get the best credit card deal on the market, so it's a good idea to shop around before applying.
Use a comparison site like MoneySuperMarket to compare the best offers available right now.
You will need to put in your personal details to get a personalised offer that’s best for you.
MoneySavingExpert.com also publishes rankings of the best credit cards out there including typical interest rates and extra perks they offer.
Don’t apply for multiple credit cards at once, especially if you have been recently rejected for a card, as this can damage your credit score.