The Hidden Cost Of Transferring To 0% UK Credit Card Offers

Having lost an estimated whopping £300 million in revenue since the Office of Fair Trading (OFT) imposed a maximum fee of £12 on late payment of credit card repayments (which were previously averaging £20) earlier this year, UK credit card providers have come up with some more interesting and innovative ways to claw-back some of these lost earnings.

A leading casualty of this policy has been balance transfers to 0% credit card programmes, previously a popular way for UK credit card providers to entice new customers.

Knowing that 0% credit card balance transfers are often advised to UK credit card users who have large outstanding credit card balances as a means of consolidating and rehabilitating their credit card debt, many UK credit card issuers have now decided that the time is right to hike their balance-transfer fees. Estimates are that UK credit card issuers are likely to reap £383 million this year as a result of the changes in their credit card balance transfer fee structure – going someway to ease the pain of reduced late payment fees imposed by the OFT.

However, changes to the credit card transfer fee structure are not the only way UK credit card issuers are looking to recoup some of their lost earnings. Additional changes include heft increases to interest rates on purchases, in some cases as much as 6%, redrawing the manner in which principal is repaid on credit card debt so that the cheapest outstanding debt is repaid first (an action taken by HSBC).

The additional cost to credit cardholders on the increased interest on purchases alone could prolong the period that cardholders making minimum repayments need in order to repay their outstanding credit card balance by many years. And throughout the additional years it will take cardholders to repay these minimal payments the card issuers will reap the financial benefits and profits, while prolonging the agony and growing personal credit card debt concerns of UK credit card users.

The decision of the OFT earlier this year to limit the amount UK credit card issuers could charge credit cardholders in the UK for making late repayments on their credit card was clearly a much need and just one. However, we are now seeing actions being taken by UK credit card issuers across the board that make it questionable whether or not the intended aims of the OFT will be met.

Clearly, the cost to UK credit cardholders for the minimal protections provided by the actions taken by the OFT are going to be too high and the time may now have come for the OFT to once again review the actions of UK credit card providers.

Richard Smith
22nd September 2006

More Information:

• 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.
• The True Cost of Balance Transfers
  Balance transfers are a great way to consolidate credit card debts into one place, especially when there are many 0% deals available. However, there are hidden costs.
• Credit Card Charges
  Credit cards appear to have only one cost to a user – the interest charged on purchases, but there are a whole raft of hidden charges just lurking below the surface. So, some cards offer an annual payment option in return for certain benefits. What is the best option, and in what circumstanc

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