Credit card repayment problems exposed

Wednesday, 13 February 2008 12:00

Credit card customers are being charged more than necessary by providers who fail to pay off their most expensive debts first when it comes to repaying balances.

Research from price-comparison site MoneySupermarket.com reveals none of the main eight credit card providers allocates repayments to the most expensive debt first, costing customers dearly.

These lenders include RBS, Barclaycard, MBNA, HBOS, HSBC, Lloyds TSB, Capital One and Egg - which account for 87 per cent of the lending market.

For example, a typical case would involve someone who made a £2,000 balance transfer at zero per cent and then spent another £1,000 on the card.

If they then paid off £2,500, the remaining £500 balance would accrue interest at the typical APR (usually around 15.9 per cent) rather than continue to enjoy a zero per cent rate.

"The common practice of providers is to allocate your payments to the cheapest debts first," said Steve Willey, head of credit cards at MoneySupermarket.com.

However, not all lenders act in this fashion.

Nationwide routinely clears the most expensive debts of customers first, but presently maintains only two per cent of the credit cards in use in the UK.

"Nationwide is a big player when it comes to mortgages, savings and current accounts. It is yet to make an impact in the credit card arena - so simple actions like this should help it grow market share," continued Mr Willey.

Many cardholders are unaware of the situation, and this could cost them dearly, according to MoneySupermarket.

"Balances are being split without consumers realising. Many cardholders paying the minimum balance each month are being stung because their money is only paying off the cheapest debt.

"This is why a zero per cent balance transfer card isn't a good thing to spend on," concluded Mr Willey.

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