UK Consumers Overpaying for Balance Transfers

Over three million UK consumers are paying over the odds when it comes to credit card balance transfers. Once fees for the balance transfer, charges and term lengths are taken into account, millions are not getting the great deal they think they are.

Fees for balance transfers were introduced by credit card issuers as a way to claw back some of the revenue lost by ‘rate tarts’ who continually exploited 0% balance transfers by switching credit cards once the introductory period on their current card expired. This way millions of UK credit cardholders avoided paying any interest on their credit card balances, hitting card issuers in the pocket.

There are a few 0% deals with no fees available but they tend to be short term compared with deals that charge a fee.

As 0% balance transfer deals dwindle, cards that offer extremely low rate of interest for the lifetime of the balance are ahead in the popularity stakes. These deals allow cardholders to pay off their credit card debt over a long period of time without accruing more debt due to exuberant interest rates.

However, there are still many competitive 0% interest balance transfer deals in the UK market place but according to online comparison site, Moneysupermarket.com, over three million are paying more than they need to for their deals.

Moneysupermarket’s analysis of the UK credit card market reveals that if you are able to repay your card debt within six months, the most prudent option would be to opt for a card that offers 0% interest for balance transfer for six months and does not levy a fee. The Post Office Platinum card is one example of a shorter introductory offer period that does charge a fee for balance transfers.

If you are unlikely to pay off your card in six months but the balance isn’t too large then considering a card that offers 0% interest for a longer term, such as 12 months, would be wise, even if a fee is charged for the transfer. Opting for a card like this will still allow you to pay off your card debt without accruing interest, resulting in your repayments reducing the capital only.

Rob Kenley, head of credit cards at moneysupermarket, said: “ It is great to see so many competitive rates on balance transfer cards, however, people should be cautious due to the complexity in these products and make sure they get the product which suits them best.

“ Zero per cent transfer deals are not as simple as they are marketed to be, so consumers need to look beyond the zero per cent offering and assess which balance transfer card is the best option to suit their needs.”

He added, “ Unfortunately for consumers with larger balances to transfer, credit card providers are phasing out capped rates. But, there are still some competitive deals to be found which are well worth seeking out.”

Alisdair Milton
20th September 2006

More Information:

• Credit Card Introductory Rate - Information from Choosing and Using
• How Interest is Calculated - more info from Choosing and Using
• Quick Balance Transfer Guide
  Balance transfers allow card holders to transfer the money they owe to their existing credit card to another, usually at a special rate of interest. The new credit card company pays off the old credit card debt and transfers it to the new card. This article will tell you how to play the game.
• Make Money Using Credit Cards
  It may seem odd that a financial product designed to offer credit can actually make users money in the process, but it’s perfectly possible. Here is our definitive guide on how to earn extra money while using credit cards.
• Successful Stoozing: A Guide
  The introduction of 0% balance transfer deals brought a new financial practice which allowed people to use those deals to make money. The practice is known as 'stoozing' and it is closely related to credit card jumping. The difference is that successful stoozers have to be debt free, otherwise any gains made by stoozing will be lost in paying interest on credit cards.

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