Consumers taking advantage of the interest-free credit card offers these days must be aware that they may be hit with steep penalties if they are unable to meet the repayment requirements. The truth is that cheap credit cards can be costly.
Researchers for TotallyMoney.com the price-comparison website, have found that as many as one fourth of those signing up for cheap balance-transfer cards go on to miss at least one monthly payment.
CEO of TotallyMoney.com, Will Becker, recently stated that it is great seeing that even the credit card industry offering competitive deals.
The truth is that cheap credit cards can be costly. Most times when someone misses a payment, they lose the interest-free status and the interest rate goes up to 20% annually which is then added to the debt.
These findings came about after the announcement of Barclaycard that it would offer a 30-month balance transfer card that would let borrowers transfer debts that had accumulated on other cards and there would be no interest charged until 2016.
According to Will Becker, this is the longest term balance transfer deal ever seen in the credit card industry.
The only thing is that consumers who take advantage of this deal must commit to making the minimum payment on time each month. Otherwise, they risk losing this interest-free option and be forced to pay the annual percentage rate on the card balance, and that averages around 18%.
This is how it works with the greater portion of all balance-transfer deals.
The Barclaycard deal, according to Becker, will result in savings of about £700 over two and a half years on debt transfers of £2,167 making it easier for people to get out of debt by making the minimum payment on time each month.
Nevertheless, MoneyComms’ Andrew Hagger cautions that any missed payment, late payment of even exceeding the designated credit limit will result in this promotional rates termination.
The easiest way to prevent this from occurring is to create a direct debit to meet the minimum monthly payment. He also added that borrowers are warned not to make new purchases using the balance-transfer card. This ensures staying within the agreed upon limits for the card.
There are typically initial fees imposed on balance-transfer cards, and these are determined in proportion to the amount of debt being moved.
The 30-month Barclaycard as well as the 28-month Tesco card deals both carry a fee of 2.9 per cent. This means a debt transfer of £2,000 would cost the card holder £58 over the term.
When signing up for balance-transfer cards it is best to do everything in your power to clear the debt within the period of time when it is interest-free.
At the end of the designated interest-free period, it is likely that the annual interest rate will go up to around 20 per cent, and there is no guarantee that you will be able to find another 0 per cent deal at that time.
Hagger suggests that if you would like a long-term deal that offers 6.9 per cent, you should go with MBNA’s rate-for-life card. This interest rate will stay the same until the balance transfer is cleared.
A recent survey which was published by HSBC discovered that as many as 22 per cent of people this year plan to use loans or credit cards to finance Christmas shopping. This number is up from the 17 per cent that did so last year.
About Jonathan Matthews
Lucy Collins has over 15 years experience working as a senior debt advisor for some of the most prestigious debt management companies in the UK. Jonathan has been helping people get out of debt, is well respected within the finance industry and enjoys blogging and sharing news regarding debt and finance.