The ‘order of payment’ rules enforced by credit card providers mean that three quarters of credit card bills see the lowest interest debt being paid off first, while more expensive debt rakes in higher interest gains for the plastic providers, MoneyExpert.com has revealed.
Providers charge varying levels of interest for different forms of borrowing on the card, with those who use their credit cards to borrow cash being the hardest hit, with an average interest rate of 23.96 per cent, which will stay on the card until cheaper debts have been paid off.
Most cards pay fees off first, followed by balance transfers, purchases and then cash advances, MoneySupermarket.com’s research found, with 76 per cent of credit card providers clearing the cheapest debts first, and 80 per cent have purchases and cash withdrawals as the last things to be paid off, so credit card providers gather more interest for longer.
MoneyExpert.com recommends that credit card customers research the market and their own credit cards’ terms and conditions to ensure they are not getting a raw deal.
Sean Gardner, Chief Executive of MoneyExpert.com, said: “If you’re unaware of the order of payments on your card, it’s definitely worth checking. Particularly if you’re keen to buy something but have already used your card for a hefty balance transfer.
“Under those circumstances your purchase could sit on your account for over a year while you pay off your balance transfer, incurring interest of at least 20 per cent. A £500 purchase can end up costing you £600 – or more. As with all credit card deals you need to check that the card you’re using is suited to your requirements. If you do want to use your card for cash withdrawals or purchases there are some cards that’ll help you pay those off first to help you avoid prolonging the interest incurred. But those are few and far between.”Compare Credit Cards
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