Balance transfer deals a "ticking time bomb"

20/03/2009

Borrowers are being turned down for 0% balance transfer credit cards, with many forced to repay debt at a higher rate.

According to research from CashQuestions.com, eight per cent of customers looking to switch to a new credit card deal have had applications for low-rate deals rejected.

On a regional basis, ten per cent of Londoners have had such an application turned down in the past six months.

Worryingly, 13 per cent of borrowers in the capital said they will struggle to make repayments once their current balance transfer deal expires.

Annie Shaw, founder of CashQuestions.com, said balance transfer deals are a "ticking time bomb" of debt.

"As each day of their balance transfer term ticks away they move ever closer to the date when their interest rate shoots up and their debt becomes unaffordable," she explained.

The figures found that despite the historically low Bank of England base rate, some credit card providers have increased their standard credit card rates, with ten per cent of borrowers noting a rate rise in the past six months.

"Credit card issuers are becoming more selective and risk conscious with regard to their client take-on and in the current recession do not want to continue the 'pass the parcel' cycle of moving debt balances," EuroDebt director Kevin Still said.

"Historically, many consumers have taken a new card out with the intention of paying a balance transfer fee and moving the balance to zero interest account for promotional period and clearing the balance on the interest bearing account."

However he added: "In reality, both new and old credit facilities get maxed out and the level of debt doubles with the time bomb of the interest on both accounts kicking in. This type of 'Debt Spiral' is the most common reason for people starting a Debt Management Plan with EuroDebt."

Tags; Debt Management and Banking,

Regional Debt Advice; Debt Help London,

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