Credit card payment system "costs over £6 bn"

31 August 2005
The payment system employed by credit card companies may be costing card-holders as much as £6 billion, according to a price comparison website.

Moneysupermarket.com has revealed that the majority of credit card companies do not use initial payments made by borrowers to pay off the most expensive or longest-standing debt first.

Operating what the website calls a "negative payment hierarchy", such companies actually cost borrowers up to £64 billion in total by failing to clear the heaviest debts first, the research claims.

A £3,500 debt on a card with a negative payment hierarchy system would actually cost up to two extra months and £300 in interest to pay off compared with a positive payment hierarchy, moneysupermarket.com found.

Richard Mason, director of credit cards at moneysupermarket.com, said: "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."

Mr Mason advised credit card holders to check the small print carefully when choosing the right card for them – unless they intend to clear their credit balance in full every month.

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