Recession hits 0% balance transfer deals

03/09/2009

With the recession and "surging" unemployment hitting credit card providers hard, many firms are withdrawing their interest-free balance transfer deals while ramping up the charges for cash transactions in order to boost their profit margins, a new report has claimed.

Research carried out by Moneynet found that zero per cent balance transfers with terms of a year or more have been among the biggest victims of the downturn in the credit card market.

The study said there were 39 of these longer-term deals available last year, but this has now dropped to 24.

Overall, the average balance transfer fee currently stands at 2.92 per cent - the equivalent of around two months' interest at the average APR of 17.32 per cent.

Moneynet's Andrew Hagger said this makes balance transfers with either five or six-month terms "hardly worth the effort" for consumers.

The pressure on profits has also seen credit card providers increase their charges for cash withdrawals by an average of 1.3 per cent over the past 12 months, bringing the increase in rates for these transactions to a "massive" seven per cent since 2005, Mr Hagger added.

According to research by uSwitch.com based on a YouGov poll of British adults, 7.31 million people use their credit cards for cash withdrawals, making an average of 5.2 transactions a year. These 38 million withdrawals rack up interest charges of £161 million.

At the end of 2008, there were more credit cards than people in the UK, with 71.3 million charge and credit cards on issue in a country with a population of around 60 million, payments association Apacs said.

EuroDebt director Kevin Still said: "For people already in debt, juggling credit card balances is becoming harder, not only to get credit in the first place but also to get any value from the interest-free period to start repaying back debts at a faster rate.

"On balance, the temptations of switching balances and keeping the old card active can be too great and EuroDebt sees many people that had the best intentions of clearing debts but only succeeded in increasing their debt burden, resulting in a 'debt spiral'.

"Rates on credit cards have risen dramatically for all transaction types. This is particularly painful if applied to the existing balance as well as new transactions.

"Recent Bank of England figures show that credit card borrowing bucked the trend of all other borrowing by increasing by £92 million. I feel that a lot of people in financial difficulty are having to use plastic to makes ends meet, but for how long?"

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

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