More than 5 million British people have credit card debt that they won’t clear in full for ten years. Some consumers are paying £2.50 for every £1.00 borrowed, which is concerning enough that the Financial Conduct Authority (FCA) is going to make banks take action.
Credit cards are everywhere. In the UK, we are top of global league tables for credit card ownership, according to Kantar Media TGI research, with 73% of the population owning at least one credit card. Sixty percent of people pay the balance in full every month, with average credit card users only accessing 7% of the available funds. Some even play one card off against another, making more money than they pay in charges.
However, not everyone has the funds or ready access to credit facilities to juggle cards and pay balances every month. But that hasn’t stopped credit card companies targeting people – even those who can’t afford it – with offers to transfer a balance to a card with 0% interest.
With average household debt around £13,000, we have to wonder if the financial sector is once again following a dangerous and irresponsible path? What about consumers: Are people aware that alternative options exist?
Making Sense of 0% Balance Transfer Offers
Credit cards are useful when they can be paid off quickly, or when you are only using them for small purchases. But for the 3.3 million people paying more in interest than the outstanding balance, banks are earning a considerable profit from those customers. Hence FCA concern; although, action to help them may not come into force until 2018.
We need to remember that banks can’t stop people from spending. All they can do is offer advice, guidance and ensure customers understand their options. It could be said that many are failing in this area, especially when offering someone a 0% credit card balance transfer.
Offering a customer a new credit card, with a long zero-interest rate period (up to 40 months, or more) sounds like a great deal. Transfer fees are often 3.9% or less, with some free or only 1%, which is usually far less than one month’s worth of interest.
Providing someone can afford to pay the debt in full they are getting a bargain, but for many who can’t afford this, they are effectively being tricked into prolonging their debt cycle. Applicants should check they can afford the deal first, with affordability calculators on most comparison websites. Credit score tools, such as ClearScore, will also show whether you are eligible for an offer, which is worth checking, since once a credit check is done it leaves an imprint on your file, thereby reducing your score.
Not only that, but not everyone who is eligible gets a great deal. About half are offered a higher transfer fee with a shorter zero-percent interest timescale. Not everyone who gets these offers is eligible, which means applying leaves a negative impression on your credit file. The FCA has also found that 20% of people on zero-percent deal cards did not expect to pay interest on a new purchase. A classic bait and switch, with banks concealing information they ought to make clear to applicants.
A Better Alternative?
Transferring debt from one card to another is fraught with risks. Especially if you are worried about your credit score. Loans from banks are harder to get than credit cards. Thankfully there is an alternative. With FairQuid, you can take out an affordable loan and consolidate credit cards and any other debts.
We only work with ethical lenders and credit unions, and they use a broader set of criteria to assess a loan applicant, including your salary and number of years with your employer. Minimum eligibility means at least one year with your current employer.
Want a solution this year? Debts you want to consolidate? Or are you looking for an easy way to start saving?
FairQuid is here to help. Our loans have already made debts more affordable for hundreds of people across the UK who want to reduce their debts and start saving. Fill out the form on this page so you can ask your employer to offer this as a completely free benefit to all staff.