"Rate tarts" in a jam as charges rise

24/08/2009

"Rate tarts" who use zero per cent balance transfers to shift their debts from one credit card to another are facing tougher times as providers withdraw deals and increase their charges, according to reports.

A year ago, the average fee for a balance transfer deal was 2.74 per cent. This has now climbed to 2.92 per cent, with some lenders charging up to five per cent, the Daily Mail stated.

Lenders are also getting tougher on who they accept. Recent research by comparison service uSwitch.com revealed that around two million "rate tarts" were rejected for zero per cent balance transfers in the 12 months to June.

Some of those looking for an alternative to zero per cent balance transfers are turning to low lifetime balance cards. These products offer lower interest rates than standard credit cards and these rates are guaranteed for the life of the transferred balance.

The Daily Mail said these products can be a "good option" for those unable to clear their credit card debts within 12 months.

However, in order to land a low lifetime balance card, consumers usually need a "spotless" credit record.

EuroDebt director Kevin Still said: "There is a difference between consumers that are playing the system to avoid paying meaningful interest on large purchases repaid in a period of 12 to 18 months and those that are taking out new cards of financial necessity.

"Switching debt balances and then using the available capacity on the old card remain very common, with the result that the levels of debt can escalate very quickly and may reach a point when interest starts to be applied to the new account that the debt is unaffordable.

"A debt spiral is not uncommon and for many years was the most common reason for people starting a EuroDebt Debt Management Plan. In recent times 'loss of income' has overtaken this as the primary debt reason.

"We would recommend people taking professional debt advice before taking out new lines of credit unless they are very disciplined and budget effectively."

Tags; Debt Management and Banking, Young Family Finances, Credit Card Lifestyle,

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