Financial Services > Credit Cards > Credit Cards News

UK could be paying GBP6bn in unnecessary interest

Wed, 31 Aug 2005

Credit card and loan comparison experts Moneysupermarket have estimated that people in the UK could be spending an unnecessary six billion pounds annually by not correctly prioritising their credit card interest payments.

Credit card holders all too often take the approach that paying off the oldest credit card debt or the credit card balance with the highest interest rate first is the most sensible approach.

Credit card charges rarely work on this basis, however – only four credit card providers in the UK consider debt hierarchically, where the most expensive credit card debt is cleared first.

For example, a £2,000 balance transfer, £1,000 purchase and £500 cash advance on a card which has a negative payment hierarchy - such as The Goldfish card at 14.9 per cent APR, six months 0% credit card balance transfer period and a 16.7 per cent APR for cash advances - £840.98 is paid out in interest with a £105 repayment every month.

However, this is cut by a quarter with the Nationwide Classic Visa, also at 14.9% APR and 16.7 per cent APR for cash advances, which operates on a positive payment hierarchy basis, culminating in only £631.10 in interest paid out - a saving of over £200.

"Manipulating the order in which a card providers clears any outstanding balance is one of the sneakier methods of clawing back interest. Many borrowers are not aware that a lot of credit card firms allocate payments in this way," said Richard Mason credit card expert at Moneysupermarket.

"Overwhelmingly, credit card providers will clear balances at lower or promotional rates before clearing the standard rates," he added.

add to favouritesnewsletterlink to this pagesend to friendpost comments

Link to this page

Copy and Paste the following HTML into your page.

Choose a credit card

Choose the perfect card

Choose the right credit card for you and apply with confidence.

Choose a credit card