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More than 7% of UK consumers and 13% of Londoners predict that they will be in financial trouble when their existing low or 0% credit card balance transfer deal comes to an end. That’s the worrying finding of new research carried out by CashQuestions.com.
One in five (20%) of UK consumers have taken out a 0% or low-rate balance transfer deal in the past 18 months, with many taking advantage of balance transfer deals offering 0% interest for up to 16 months. However, 8% of consumers looking to switch their balance to another credit card have been turned down for a low-rate balance transfer deal in the last six months, leaving many with little option but to repay their credit card debt at the provider’s standard rates of interest.
And for some the bad news just gets worse. Despite the Bank of England reducing interest rates to record lows, nearly 10% of consumers have had their standard rate of interest increased by their credit card provider in the past six months.
Across the country it appears that Londoners have been most tempted by cheap plastic credit, with nearly 32% taking out a 0% or low-rate balance transfer deal in the last 18 months. Unfortunately, it seems that some will soon be paying a high price. Over 10% of Londoners who have applied for a 0% or low-rate balance transfer deal in the last six months had their applications rejected, and over 21% have had their credit limit reduced on at least one of their credit cards. Perhaps most worrying is that 13% of Londoners think they are going to be in financial trouble when their current balance transfer deal comes to an end.
“Once upon a time, when credit was easy to come by, these low-rate balance transfer deals looked like the best thing since sliced bread. Consumers were encouraged to switch their debts between credit card providers and, although the underlying advice was to use the low-rate period to clear the balance, of course many people haven’t,” said Annie Shaw, founder of CashQuestions.com.
“As a result, these balance transfer deals have become a ticking time bomb for many people. 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.”
The Welsh have been most cautious about taking advantage of what was once easy credit. Just 11% of Welsh consumers have taken out a low-rate balance transfer deal in the last 18 months – nearly three times fewer than those in the capital.
However, of all the UK’s regions it appears that people in the East Midlands and East Anglia are the least worried about their prospects once their balance transfer deals expire. Just under 4% of consumers from those areas say they expect the end of their balance transfer terms would leave them in financial trouble.
It seems that there’s a strong feeling from consumers across the country that credit card companies are partly to blame for their high levels of credit card debt. Nearly 17% of those surveyed felt that credit card providers helped get them into debt, and should now offer more help to get them out of it. In addition, 22% felt that credit card providers should do more to help their customers when their low-rate balance transfer deal comes to an end, with the figure rising to over 34% among Londoners.
“Unfortunately, for many consumers with soon-to-expire balance transfer deals it seems getting into financial trouble is almost inevitable,” said Annie Shaw.
”Credit card providers who have used low rate and 0% balance transfer deals as their hook to catch new customers must now offer tangible help to those who find themselves caught in the balance transfer trap.
“An amnesty on interest rate increases, or conversion of those debts into loans with reasonable interest rates of no more than 5% per annum, should give consumers breathing space and the opportunity to repay their debt without being pushed into default.”
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