Borrowers urged to look beyond short-term interest free deals

M&S Money urges borrowers to look beyond short-term interest free deals unless they are confident of repaying their debt during the initial period.

Latest research by Marks & Spencer Money shows that the majority of Britain’s credit card borrowers have taken to the practice of moving debts from one card to another – known as ‘transferring a balance’ – with over half (51%) of cardholders having switched a balance to a card with a cheaper rate at least once.

Although this good financial management deserves praise, the research suggests borrowers are viewing interest free introductory periods as a delaying tactic rather than an opportunity to clear debt more quickly. Only one in three (36%) borrowers who transfer a balance clear their debts by the time their new credit card reverts to its standard rate, typically between 16 and 19% APR.

Unsurprisingly, it tends to be borrowers with smaller debts who clear them within introductory periods. So even though a third of borrowers manage to repay their debts, less than a quarter of actual transferred balances are repaid during introductory periods. This is likely to be due to borrowers with larger balances not being able to make the necessary repayments to clear their debt.

The amount repaid also differs between men and women. Men tend to make larger balance transfers and are worse at repaying them, on average men will only repay £17.50 of every £100 they transfer during their introductory period. This leaves them with over 80% of their debt reverting to a higher standard interest rate.

Eddie Nott, deputy chief executive of Marks & Spencer Money commented, ”Britain’s borrowers have caught the balance transfer bug, however the majority are not making the most of their low interest deals and clearing their debt. We urge borrowers to opt for lifetime balance transfer offers unless they are confident they will repay their borrowings while it’s cheaper to do so.”

A concern for borrowers who still owe money on their card at the end of their introductory period is that almost two out of three (64%) of them never ‘transfer’ the debt again and continue borrowing at their card’s higher standard interest rate.

A simple alternative for borrowers in this situation is to opt for a credit card such as the & MORE Credit Card from M&S Money. It is one of the few cards not to charge a BT fee and it offers rates of 3.9% on balance transfers for the lifetime of the balance and 0% for 12 months on all purchases.