Credit card companies in the UK are constantly competing to provide the most competitive introductory interest-free period on balance transfers. At the time of writing, the market leading balance transfer credit cards are offering a whopping 37 months without interest.
Official figures show that total borrowing on credit cards in the UK has reached £61 billon; £14 billion of which is currently held on interest-free cards, accounting for 22% of all new cards taken out.
Many see these cards as a great way to borrow money or clear debts without having to pay interest. Used wisely, they can be a smart financial decision. However, research is showing that increasing numbers of people are not using these cards effectively.
Figures published by the Financial Conduct Authority (FCA) show that only half of those who take out balance transfer deals repay their debts before the introductory period ends. After this period, interest will be charged on the remaining balance; normally at a rate of 18.9% APR.
The FCA says that around 1.6 million consumers regularly make only the minimum repayment to their credit cards, even when they are incurring interest.
Borrowers who choose only to make the minimum payment to their accounts risk paying their debts for decades.
For example, if you were to pay the minimum repayments on a £2,000 balance on a credit card charging 18.9% interest, it would take you over 24 years to clear the balance. In addition to the balance, you would also pay over £2,700 in interest.
Beverley Budsworth, Managing Director of The Debt Advisor comments: “Used with care, these interest-free balance transfer cards can be very useful. They are often a great alternative to loans resulting in a lower overall cost of borrowing. However, people must ensure not only that the repayments will be affordable, but that the balance will be cleared before the interest-free period ends. You must also take into account that if you miss a payment, you risk the interest-free offer being cancelled.”
There are a range of debt solutions available for individuals struggling with debt and the right type of solution depends on your circumstances. If you are struggling with debt issues please give our team a call on 0800 0851 825 or use our contact form. Our advisors can speak with you about all available debt solutions such as Debt Management, IVAs, Bankruptcy and Debt Consolidation.
All debt solutions need to be carefully considered. IVA’s are formal solutions and failure to keep to the terms can result in your IVA failing and you could end up bankrupt.
There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.