One in three borrowers failing to clear balance transfer debts

Many people are taking out balance transfer credit cards but not repaying the debt they owe.

One in three borrowers is not paying off their credit card debt during the interest-free introductory period on their balance transfer credit cards.

The average debt at the end of the 0% period is £2,400 per customer, according to research from Consumer Intelligence.

On top of this one in five borrowers has seen their introductory offer cut because they’ve broken the terms and conditions of the credit card.

Increasing debts

The balance transfer credit card market is fiercely competitive with the top cards offering 0% interest for more than two years.

During the interest-free period borrowers are free to focus on clearing their debts. But new research shows that just over a third (34%) of people aren’t doing that.

In the past two years 44% of the people asked by Consumer Intelligence said they had paid off the entire balance in the 0% period but nearly a quarter (22%) had failed to do so. A further 22% said they hoped to pay it off by the time the 0% period came to an end and 12% said they did not think they would be able to.

As each balance transfer has a fee attached, usually between 1% and 3%, borrowers who aren’t using these cards correctly are unnecessarily wasting money which could be pushing them further into the red.

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Introductory period axed

One in five borrowers who have successfully been accepted for a 0% balance transfer card have seen the introductory offer cut.

The main reason for the 0% period ending early is because people are making a late monthly repayment, which 40% are guilty of. The second reason is missing a monthly payment altogether, which 21% have done.

One in 10 has paid less than the minimum required, 6% have gone over the card’s limit and 23% said they didn’t know why the terms of their card had changed.

Those aged 18-24 are most likely to break the rules on a balance transfer card and subsequently lose the benefits available.

Moving the debt to another card

At the end of the 0% period, over two-thirds of people (67%) said they planned on moving existing debt onto a new 0% card.

This shows a worrying pattern of borrowers using these cards to build up more debt rather than dealing with paying it off.

As there’s no guarantee you’ll be accepted for a new card many people may be left paying off their existing debt with a high interest rate when the 0% period ends.

How to use a balance transfer card

Balance transfer cards have been in the news a lot this year as providers fight it out to launch the longest deal. The market-leader comes from Barclaycard and has a 29-month 0% period. It will cost you a fee of 2.79% of the amount you wish to transfer.

Read The best 0% balance transfer credit cards for more on the top 0% cards.

To make sure you don’t miss a payment, it’s worth setting up a direct debit. You should also work out how much you need to pay each month in order to clear the card by the end of the 0% period.

A credit builder credit card, which is designed for those with a bad credit score, may be a better way to clear your debts. These typically have higher interest rates which are lowered if you meet the monthly payments on time. Over time these cards can help you improve your credit score.

If you’re in real financial trouble a credit card is not going to be the answer. Seeking free and confidential help from a charity such as Step Change is a better idea. It can approach lenders for you and work out a free debt management plan.

Read How the most vulnerable can help themselves out of debt.

Compare 0% balance transfer credit cards

Do you have a balance transfer card? Will it be cleared by the time the 0% period ends? Let me know in the Comments box below.

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Top alternatives to Barclaycard balance transfer credit cards

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