The True Cost of Defaulting on 0% Credit Card

Missing one payment on a 0% balance transfer credit card could cost you far more than you think. According to new figures from Moneysupermarket.com, missing a single repayment could end up costing the cardholder a whopping £278.

Aside from the cost of interest incurred from missing a payment, there are other costs to the cardholder. The online comparison site warns UK credit cardholders that aside from the financial cost they also risk damaging their credit file as well as forgoing the introductory benefits that the card affords the customer.

Rob Kenley, head of credit cards at Moneysupermarket, said: "Those on a 0% balance transfer introductory period may not be aware of the sever penalties a single missed payment can result in.

"These credit card holders could be stung with unexpected interest payments if their credit card is one of the 31 cards that automatically revert back to the typical APR after defaulting on one repayment."

Many UK credit card holders may be unaware that currently 62% of cards that offer 0% balance transfer offers automatically revert to their typical APR if a customers defaults on a payment just once, cancelling out the benefits of the 0% deal.

Taking into account the average amount placed on a balance transfer deal, missing a repayment could end up costing £278 in interest.

To compound the financial consequences of missing a payment, defaulting could also lead to the cardholder's credit history being adversely affected.

Mr Kenley went onto say: "People also need to be aware that failing to make a repayment could also have a negative effect on their credit profile.

"This could make obtaining credit for everything from mobile phone contracts to mortgages much harder. Additionally, when they are accepted for financial products it is likely they will be offered a higher rate (of interest)."

Setting up a direct debit to make the minimum repayment each month will ensure no payments to the credit card are missed thus avoiding any penalties.

Alisdair Milton
19th February 2007

More Information:

• Quick Balance Transfer Guide
  Balance transfers allow card holders to transfer the money they owe to their existing credit card to another, usually at a special rate of interest. The new credit card company pays off the old credit card debt and transfers it to the new card. This article will tell you how to play the game.
• The True Cost of Balance Transfers
  Balance transfers are a great way to consolidate credit card debts into one place, especially when there are many 0% deals available. However, there are hidden costs.
• Successful Stoozing: A Guide
  The introduction of 0% balance transfer deals brought a new financial practice which allowed people to use those deals to make money. The practice is known as 'stoozing' and it is closely related to credit card jumping. The difference is that successful stoozers have to be debt free, otherwise any gains made by stoozing will be lost in paying interest on credit cards.
• Common Credit Card Mistakes
  With credit cards now outnumbering people in the UK you would be right to assume that not everyone in this country uses their credit cards either correctly or wisely. But what are the most common mistakes that credit card holders make when using their credit cards?

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