The Government has recently issued a consultation document outlining some of its proposals to help protect credit card holders.

The consultation sets out a number of different options. In summary, the main ones are:

1. Review the order in which your payments go to reduce your credit card debt. If you’ve used your credit card in different ways, for example, to transfer balances, make purchases or withdraw cash, then they will each attract different rates of interest. Balance transfers may be interest free for a period of time, whilst cash withdrawals or credit card cheques often carry the highest rate of interest.

   At the moment, when you make a payment, the credit card company applies it to the part of your account that has the lowest rate of interest. This means that it takes much longer to repay the more expensive parts, such as cash withdrawals. You pay more in interest and the credit card company makes more money.

   Some of the options being suggested are to reverse this so that your payments go to reduce the expensive debt first or giving you a choice as to which part you repay first.

2. Changing the minimum payment amount. Many credit cards only require minimum payments each month of 2-3% of the outstanding balance. If you only pay this it can take you years to repay the debt. In very simple terms the lower your monthly payment and the higher the interest rate the longer it will take.

   The Government is considering whether it is appropriate to set minimum payment amounts at a higher level, say 5%. The other option is to keep them as they are and for the credit card company to tell you about a "recommended minimum payment" which is aimed at repaying the debt over a 3 year period.

3. Proposal to ban automatic credit limit increases. Many lenders automatically increase credit limits on cards and the first you know about it is when you receive a statement or letter. For some people, this only provides another means of getting further into debt.

   The Government is suggesting either banning this outright or asking the customer to "opt in" to having their credit limit increased, either at the time when they apply for the credit or when the increase is given.

4. Restricting when the lender can increase the interest rate on a debt that is already in place. Currently, lenders can change the interest rate on the account, including increasing it. The consultation proposes a ban on this or putting in place certain conditions under which the lender can increase the rate.

5. Annual Statement. This may see the introduction of an annual statement being issued which sets out the costs for using the account over the last year. This would include interest rate charges and any charges for being over your limit or missing payments.