Docstoc

Avoid_Credit_Card_Balance_Transfers_Pitfalls

Document Sample
Avoid_Credit_Card_Balance_Transfers_Pitfalls Powered By Docstoc
					Avoid Credit Card Balance Transfers Pitfalls

Word Count:
637

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:
credit card, cheap credit card, uk credit card, low interest credit card,
credit card company, 0 credit card


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.”

				
DOCUMENT INFO