Consumers warned of balance transfer costs
(09 June 2006)
New figures from Nationwide have revealed the startling cost of balance transfers on credit cards – with providers pocketing some £500 million a year from these and similar introductory offers.
Standard practice among providers is generally to use monthly repayments to pay off cheap balances first, while leaving other expensive debts to accrue interest – and this typically hits consumers in the pocket to the tune of a damaging £100 a year in interest charges.
Nationwide executive director Stuart Bernau warned: "Many credit card providers use low introductory rates to lure people into opening an account.
"These offers can look very appealing, but when you scratch beneath the surface you discover that credit card holders often don't receive the full benefit of these low rates.
"Most providers apply repayments to the cheapest debt first making it more expensive for you and more profitable for them. We call on the industry to play fair by consumers and apply repayments to the most expensive debt first."
It is often the case that cheap, zero per cent transfers are paid off first – known in the industry as a "negative payment hierarchy" - leaving larger amounts to gather interest and effectively meaning that customers are not getting much benefit from low advertised rates, although this does not stop many from switching their balance transfers on a regular basis.
Nationwide is next week launching a television campaign urging people to be aware of card providers which operate in such as way where balance transfers are concerned, pointing out that people may see their remaining balances rack up interest of between 15 per cent and 30 per cent a year after their cheapest balances have been paid off.
This evidence shows again that longer-term credit is not always the best way of hauling yourself out of a financial tight spot. It is certainly worth considering your options and deciding whether you need to commit to deals which could see you paying much more interest than you would like, and often this takes time.
A payday loan can therefore come in useful if you need to buy yourself time to find a good longer-term solution to any financial problems – allowing you between £80 and £1,000 worth of breathing space. This is repaid upon your next payday, with rates no higher than £25 for every £100 borrowed and perfectly explicit.
Cash advances by companies such as My Payday Loan ( http://www.mypaydayloan.co.uk ) are not only useful to afford you time to realign your finances, but can also work for you if an unexpected expense comes your way – such as a slightly higher bill than usual – or if you have an event to plan for such as a wedding or a birthday party.
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