Credit card balance transfers – when will the 0% madness end

The battle to offer the longest zero per cent duration for credit card balance transfers rages on with yet another high profile deal just launched.
The latest 0% best buy topper from Barclaycard lasts for a staggering three years and puts the pressure on rivals Halifax, Tesco Bank, MBNA, HSBC and Sainsbury’s to keep their deals competitive.
Some may question why providers are still pushing 0% cards – however in December alone there was £1 billion switched to interest free plastic and with Barclaycard charging a balance transfer fee of 2.99%, even if it only got a quarter of that new business (£250 million) it would net £7.48 million in fees.
According to the latest British Bankers Association statistics there is £60.35 billion outstanding on credit cards (the highest amount since Feb 2011) and 42.9% of this is sitting on interest free cards.
That 42.9% interest free slice equates to borrowing of £25.891 billion.
With NatWest/RBS already pulling out of introductory deals on credit cards and the FCA undertaking a credit card market study, it begs the question as to what would happen if 0% deals were suddenly banned or phased out.
If the £25.891 billion was charged at the average credit card rate of 18% APR it would cost those borrowers a collective £4.66 billion in interest over the course of a year or £388 million per month.
The best they could hope for would be to transfer it to a standard low rate card – for example MBNA Low rate Card at 6.6% APR, but the interest cost would still amount to £1.71 billion per year or £142 million per month.
A credit card used to be considered as a tool to help you cope with the odd unexpected expense such as a car breakdown or when the washing machine packed up, but now for many they are frequently seen and used as a long term loan.
What we don’t know is how much of that £25.891 billion is interest free because the cardholder is being smart with their finances and how much is related to borrowers who are struggling to make repayments and are continually moving their debt around without making any inroads into it, I fear a bigger slice is down to the latter.
If you are financially disciplined, there are some good savings to be made, but the potential financial costs of these cards can be high if they aren’t managed properly.
The problem, and something the card providers rely on, is that many people fall off the 0% wagon mid-term and end up incurring significant interest charges.
If you are accepted for one of these products, make sure you don’t exceed your limit or miss a monthly payment as the lenders use this as a handy get out clause to terminate the introductory promotional deal on the spot.
Another tip for savvy borrowers is, don’t blindly opt for the card with the longest interest free period unless you intend on using it for the full term.
It’s not uncommon for customers to switch to 0% and then switch away again or repay the balance well before expiry, so for many people the balance transfer fee is also a key area they should consider if they want to keep costs to a minimum.
The one off balance transfer fee is much cheaper if you opt for a term which is slightly shorter than the table topping cards. For example the Santander 123 Credit Card and Halifax 0% Card offer 23 months and 13 months free respectively and neither charges a balance transfer fee.
Our reliance on credit in the UK is increasing rapidly and that’s partly to be expected as the economy improves and consumer confidence grows, but you start to wonder where all this 0% obsession will end.

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