BEWARE: 0% Transfer Offers on cards you already have a balance on

mssloan

Hi,

Just received a couple of 0% Balance Transfer offers and the thought occurs to me is that Credit Cards companies are trying to catch out customers who already have a Balance on their cards (especially so if this is a previous Balance Transfer at a special rate). Now CCs are forced to apply payments to the most expensive portions of a balance, it is in their interest to tempt customers to add some 0% (for a fixed period) debt to their card. Let me try and illustrate what I'm trying to say:

• Fred has Credit Card A with a balance of £2000 on which he is paying a Lifetime Rate of 6% from a previous Balance Transfer Offer.
• Fred has Credit Card B with a balance of £3000 on which he is paying a Lifetime Rate of 9% from a previous Balance Transfer Offer.
• He has a Credit Limit £6000 on Credit Card A.
• He takes up an offer of 0% for Six Months from Credit Card A to transfer the balance from Credit Card B.
• So now Fred has £2000 @ 6% and £3000 @ 0% on Credit Card A.
• Over the next six months Fred reduces the balance on Credit Card A by £500. These payments will all be applied to the £2000 potion of the balance because it is the most expensive (6%). The £3000 potion will be be untouched because it is the cheapest debt (0%)
• However at the end of the six months the £3000 potion reverts to the Standard Balance Transfer rate for Credit Card A of 19%
• So now Fred has £1500 @ 6% and £3000 @ 19% on Credit Card A and only now will payments be applied to the £3000 potion of the balance

I hope this will help to illlustrate the potential dangers of accepting low interest Balance Transfer offers now that the rules have changed.

Regards,
mssloan

Swans1912

mmmm... kind of see the point but don't feel so strongly. I can't see what they are actually doing wrong or being sneaky with.

Swans1912

Thinking about this more...

Fred shouldn't have balance transferred away from Card B if he wasn't able to pay off the amount within the 0% offer and just stuck with the lifetime rate? But surely this is the case from a normal point of view... lifetime rate vs 0% offer.

Not the credit card companies fault Fred is dull? Better then the old rules.. at least he can pay of the higher rate first

What am I missing?

mssloan

I'm not claiming that Fred is particularly bright, all I'm attempting to do is illustrate the potential hazard of adding Low Rate Balance Transfers to cards with existing balances.

mssloan

thenudeone

I think the comment "trying to catch customers out" is appropriate.
If there is more than one 0% promotional offer made on different dates with different expiry dates and for different types of balance (purchases, cash, or BT) it can get even morre complicated.
Most people are not financially literate enough to do the analysis that mssloan has done; they would just take the 0% offer at face value and be surprised when they got hit with interest charges, even though there charges are in line with the terms.
It's up to us to be aware of the pitfalls of this sort of trap and "beat them at their own game".

Any

Of course they are trying to catch up and of course people "in the know" (ie for example credit card board experts) are wise and won't fall for these catches..

However, if every one was such an expert then there wouldn't be tens and hundreds of people coming here for advice every day/week... And before this catch, we wouldn't have in big letters warnings everywhere on this site "do not spend on BT card"...

So the point made my mssloan is valid. Even though I/you could see through the catch.

poopscoop

Doesn't sound sneaky to me.

[Deleted User]

I still think Fred's an idiot. Tell him to get his act together. He probably spent the money on online gambling and WKD.

He needs a punch.

Percy1983

I don't see the problem myself, if anything I prefer the old system, yes it was a trap but us clever ones never fell for it, now how long is it before APR's and charges go up for all of us rather than just hitting the not to cleaver.