Average credit card interest hits record high: are you paying more than you should?

Using a credit card has become far more expensive in recent years, with average borrowing costs now at their highest level on record.

The average interest rate on credit cards reached 35.9% APR in May, according to financial information company Moneyfacts. That’s up by around 14 percentage points compared with a decade ago.

At the same time, outstanding UK credit card debt totalled £79.5bn in February, according to figures compiled by The Money Charity. Its latest statistics show that the average household now holds around £2,700 of credit card debt. 

However, there is a range of cards with much more competitive APR rates, and there are services you can reach out to if you’re struggling with debt. Read on to find out more.

Please note that this article is for information purposes only and doesn't constitute advice. Please refer to the particular T&Cs of a credit card provider before committing to any financial products.

What is APR?

APR stands for ‘annual percentage rate’, and is designed to show an annual cost of credit, including interest and other charges. It's calculated using an assumed level of borrowing of £1,200.

The ‘representative example’ APR that you see in credit card adverts reflects the interest charged on purchases (as opposed to cash advances or balance transfers).

However, even if you're accepted for a credit card, you won't necessarily get the advertised interest rate. While some providers offer a single APR, others have tiered rates. 

If you have a poor credit history, it's unlikely you'll get the lowest rate. In fact, providers only have to offer the advertised representative APR to 51% of successful applicants.

Average APR rates saw a particular spike towards the end of 2022, triggered by the Bank of England initiating a series of repeated hikes to the base rate. While the base rate has since come down, credit card rates haven't followed suit.

Average credit card APR has risen sharply over the past decade

• Find out more: Best credit card deals

Which providers offer the lowest interest?

At Which? we analyse more than 100 credit cards every month to find the best deals across cashback, travel, air miles, interest-free, 0% balance transfer and low-interest options.

We also survey thousands of credit card customers about their experiences with providers, including customer service, account management, transparency of charges and the clarity of your statement. 

The good news is that there are plenty of cards available offering rates far below the market average if you’re willing to shop around.

Interest-free credit cards

Interest-free cards offer 0% interest for a fixed period. To find the best cards, you should look at the length of the 0% period.

You'll usually need to make at least the minimum repayment every month to keep the promotional rate. Missing payments could mean that the 0% deal is withdrawn.

Providers TSB, Lloyds Bank and Barclaycard all currently offer the longest periods of interest-free spending. 

• Find out more: Best interest-free credit cards 

Low-interest credit cards

A low-interest credit card offers a cheap rate of borrowing for as long as you have the card. So if you struggle to keep up with time-limited offers, this type of deal might suit you.

Cards from Halifax, Lloyds and MBNA  all have representative APRs of 12.9% – well below the market average 35.9% APR.

• Find out more: Best low-interest credit cards

How much could you save?

Assuming you borrowed £5,000 at 35.9% APR and you repaid £250 each month, it would take two years five months to repay the full balance, and it would cost you £2,134 in interest.

By comparison, the same scenario at 12.9% APR would take one year 10 months to repay the full balance, and it would cost you just £618 in interest.

• Find out more: Credit card repayment calculator

Get 1-to-1 money guidance

Which? Money members can get impartial guidance from our experts, based on 350 years’ combined financial services experience.

Find out more

High borrowing costs add to pressure on households

Average unsecured debt – money borrowed that isn't backed by collateral such as a home – hit £4,476 per UK adult in February, according to the Money Charity. 

Meanwhile, Which? research recently found that 3m UK households are being forced to skip meals and cut family visits.

Consumer groups have argued that persistently high credit card interest rates can make it harder for people already struggling with debt to get back on top of their finances.

Toby Murray, policy and campaigns manager at Debt Justice, told Which?: ‘We’re in a household debt crisis where millions of people can no longer keep their heads above water.’ He said that the government and regulators should consider stronger protections for borrowers struggling with debt.

The Financial Conduct Authority (FCA) is currently looking into whether APRs do a good enough job when it comes to helping people understand borrowing costs.

The regulator is also proposing to simplify parts of the consumer credit rule book on credit advertising.

Alison Walters, director of consumer finance at the FCA, said: ‘Clear information advertising credit helps people shop around. But there’s evidence that APRs do not always allow people to understand the true cost of credit.’

The consultation closes on 17 June. 

6 ways to handle problem debt

If you’re struggling with problem debt, there are steps you can take to get your financial situation back under control.

1. Find out where you stand

Start by creating a list of all your debt and where it's held. Check how much you owe and what you're currently paying each month.

If possible, try to pay more than the minimum repayment each month, as this will reduce the amount of interest charged overall. It can also help to prioritise debts with the highest interest rates first.

• Find out more: How to pay off your debts

2. Switch to a 0% balance transfer credit card

If you’ve racked up debt on expensive credit cards, think about switching your balance to a 0% balance transfer card.

These cards allow you to move debt from existing cards and pause interest charges for a set period. Some deals currently last as long as 38 months.

However, the longest deals often come with a balance transfer fee, typically around 3% to 3.5%, and are usually reserved for borrowers with strong credit histories.

Some providers also offer shorter 0% balance-transfer periods with no fee, which could work out cheaper if you can repay the debt more quickly.

• Find out more: Best 0% balance transfer credit cards

3. Consider an IVA

An IVA (individual voluntary arrangement) is a legally binding contract between you and anyone to whom you owe money, where you agree to pay off your debts to them over a specific period. 

It has to be set up by a qualified insolvency practitioner, and the people you have debts with (your creditors) must agree to the plan.

• Find out more: How to get a mortgage after an IVA 

4. Debt relief orders

A debt relief order (DRO) is designed for people with low incomes, few assets and debts they can't afford to repay.

In England and Wales, you can usually apply if you owe less than £50,000, have spare monthly income of £75 and don't own your own home. 

5. Bankruptcy

If you absolutely can’t pay off your debts, then bankruptcy might be your last option. It costs £690 in England and Wales but means any money you owe will be written off. 

It also means that anything you own may have to be sold to pay off debts – this can include your home, car and any luxury items.

It may affect your ability to borrow money in the future, including applying for mortgages and loans.

6. Get free independent debt advice

Before you take any of the more serious options, you should speak to one of the many free debt advice organisations.

If you can't afford the repayments on existing debt, it's better to get free independent advice rather than dipping further into financial trouble by using fee-charging debt-management companies.