Order of payment 'trick' hits credit card customers hard
Published On 9 October 2007
Many credit card customers could be paying more than necessary servicing their debt as a result of order of repayment that their bank employs.Research from MoneyExpert.com found that more than three-quarters of credit card companies take advantage of order of payments rules to make their customers clear cheap debt first and then earn more from the interest on more expensive borrowing.
The website explained that credit card companies charge different rates of interest on different forms of borrowing - like cash advances, balance transfers and purchases.
It was found that 80 per cent of cards have purchases and cash withdrawals - the two most expensive forms of borrowing - as the last two items to be cleared.
"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," commented Sean Gardner, chief executive of the website.
"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."
Recent findings from Abbey indicate that 23 per cent of credit card holders are planning on consolidating their borrowing onto one card.
