Avoid Credit Card Balance Transfers Pitfalls (PDF)

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					Title:
Avoid Credit Card Balance Transfers Pitfalls


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Summary:
Despite many card providers suffering falling profits and staggering rises in the level of bad debts,
competition is still rife within the market and providers continue to launch headline ‘best buy’ deals.
Andrew Britchford, credit card analyst from Moneyfacts.co.uk explains how consumers can avoid some of
the common pitfalls associated with credit card deals and make the best of the offers available. Choosing the
right card can be more complicated than you may think.



Keywords:
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Article Body:
Despite many card providers suffering falling profits and staggering rises in the level of bad debts,
competition is still rife within the market and providers continue to launch headline ‘best buy’ deals.
Andrew Britchford, credit card analyst from Moneyfacts.co.uk explains how consumers can avoid some of
the common pitfalls associated with credit card deals and make the best of the offers available. Choosing the
right card can be more complicated than you may think.


“When choosing a credit card there are many factors to consider in addition to the rate, including
introductory offers, balance transfer deals, fees, incentives and, if you dare to venture into the small print,
the number of interest free days, repayment order and how the interest is charged. These factors can soon
reduce the benefits of an apparently great deal.


“Consumers looking for a multi purpose card may find it difficult to find a card that offers competitive terms
across the range of account facilities. Providers often dangle one carrot by way of a competitive deal either
on balance transfer rates, introductory or standard purchase rates in the hope the consumer will feast upon
other facilities, and this is often where providers can earn.


“One key factor and one that is not commonly considered, is the order of repayment. By this we mean, if the
consumer has items of their bill generated by different means, for example cash advances, balance transfers
or purchases, if a partial repayment is made, what does it repay first? Does it repay the first transaction by
date order or by the order of cost?


“A prime example of how the repayment order affects an offer is the current deal, reportedly only a trial at
present, available online via the Capital One platinum card. The new card offers a market leading 15
months’ 0% on balance transfers, but the seemingly small condition of having to spend £100 on purchases
before 1 July makes it almost impossible to obtain this deal in full. By encouraging consumers to use the
card for dual purpose, consumers could potentially see their 0% deal vanish.


“The catch lies in the order of repayments. A dutiful consumer making their £100 purchase, then fully
repaying this on their next statement will probably expect to pay no interest. But this is not the case – the
£100 repayment would go towards repaying the balance transfer, while the £100 purchase would remain
accruing interest of 15.9% until the combined total of the balance transfer and balance is fully repaid
(assuming no further transactions).


“This may only seem a small amount, but when paid by all customers and sometimes on much greater
amounts, it will soon mount up. Combined with an uncapped 2% balance transfer fee, this is a potentially
lucrative area for lenders.


“If we take a worse case scenario, a consumer who, within their first month, transfers a balance of say £2K,
and who then makes purchases of £2K. When their first statement arrives, they make a repayment of £2K to
clear what they think is their purchase spend. However they will in fact be repaying their balance transfer,
leaving the consumer with a balance of £2K accruing interest and a vanishing balance transfer deal.


“Capital One is by no means the only provider to apply repayments in this order. In fact only HSBC,
Nationwide BS and Liverpool Victoria use the ‘customer friendly’ option and repay the most expensive
items first. However, it is important to note that other providers do not actively encourage purchasing on a
card designed for balance transfers.


“Consumers should take the time fully to understand the deal they are entering into. With so many cards
available on the market, they should find a deal which matches their spending needs. Trying to avoid mixing
card usage, and keeping separate cards for purchases and balance transfers will enable consumers to
maximise their savings.”




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posted:12/31/2011
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