Cardholders warned against rate shock
moneysupermarket.com is warning cardholders who took out a balance transfer card at the beginning of last year - in order to consolidate their debts - that they should double check when their zero per cent deal expires otherwise they will end up paying far more in interest on their debt.
The average zero per cent balance transfer period in January 2009 was 14.6 months, with the Virgin Credit Card leading the way with a 16 month zero per cent offer, meaning many cardholders who took out a card last year as part of the peak January consolidation rush, will be already at, or will be coming to the end of their balance transfer deal. Those who have not cleared their debt are urged to switch their remaining debt to another zero per cent balance transfer deal, otherwise the balance will revert to the card's standard typical APR; in many cases this will be in excess of 16 per cent. On a balance of £2,000, cardholders would see their interest increase by £1,456 over the lifetime of the loan, and their debt sentence extend to 19 years and 9 months.
Those used to switching their debt between cards may find their options limited compared to previous years; however the launch this week of Clydesdale and Yorkshire Banks' Gold MasterCard which offers zero per cent for 16 months launch is a good sign that some providers remain keen to compete strongly in the credit cards arena. That said, most of the current leading offers are limited to existing banking customers.
Kevin Mountford, head of banking at moneysupermarket.com, said: "An interest free balance transfer card can be a great option for consumers with existing debt who need flexibility. We would always advise consumers that they really need to make some headway in paying off the balance, but for those who have failed to clear their debt in time for the end of their zero per cent period, they should look to swap their debt to another deal before reverting to the cards' typical APR.
"There has been concern that forthcoming changes to the credit card market would have a negative impact on the balance transfer market with some of the leading players reducing their offers recently, however the launch of a new balance transfer from Clydesdale and Yorkshire Bank has reassured consumers it is possible to get an attractive deal. However, some lenders will be looking at ways to try and recoup money they will lose from ensuring customers pay the cheapest debt off first. Across the board, lenders have been reducing the length of their zero per cent balance transfer deals, meaning savvy borrowers will have to keep an eye on their statements and ensure they either pay off their debt in full, or move their debt more often in order to remain on an interest-free deal, however with credit being difficult to obtain, there is no guarantees you will be able to transfer your debts in the future."