Balance transfer credit cards reach new popularity

Santander card's recent study has uncovered some surprising figures detailing the changing borrowing habits of UK residents

. A total of 3.2 billion pounds will be redistributed on to new credit cards in the first quarter of 2010. Avoiding interest with 0% credit card deals by moving money between cards has become increasingly popular, with 10% of the population adopting this method. Also unearthed by the research was that even though a greater amount- 7 billion- was transferred last year, the total number of transfers is a third higher. The average amount transferred per transaction has gone down, now at 1140, but the amount of transactions has shot up. This has led many to proffer that UK residents are becoming more stringent in their handling of debt. An inconsistent distribution of transfer habits across the country was also revealed. The south-east will average 1807 per transaction, the highest recorded amount, whereas the north-east shows the lowest average of 149. Also in the north-east, a mere 8% will shift their debt, whereas Northern Ireland will see a massive 34% transferring. Although the credit crunch may have had a significant impact on debt-handling in the UK, are balance transfer 0% deals always the best method for improvement? Most low-rate balance transfer credit cards could cause significant complications concerning their allocation of payments clause. This clause lists the services offered by the card and what a user must pay for each. The phrase 'payments are applied to promotional rates first' is often used in this clause and could cause problems for balance transfers. The main problem here is that most credit cards will always allocate your payments to 0% balance transfers before 0% purchases, meaning money owed for purchases could become trapped and subsequently accumulate a large amount of interest. For example, if 500 was transferred, then 200 was spent on purchases, then 50 was paid back each month it would take 10 months to repay the balance transfer but none of the 200 on purchases would have been repaid and would also have accumulated interest. MBNA credit cards - including the Virgin credit cards - have now changed their allocation of payments clause to allow cardholders to pay off shorter 0% deals before the longer 0% deal.' Consumers should be advised to read the small print and double check their allocation of payments clause before applying or their careful debt handling could go awry.

Balance transfer credit cards reach new popularity

By: Emily Gorton

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