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Why you should never be loyal to your credit card


1st Jan 2015 Managing your Money

Why you should never be loyal to your credit card

Loyalty doesn't pay when dealing with your bank, particularly when it comes to credit cards. Banks and building societies aim their best deals at new customers, meaning loyal customers pay the price in the shape of higher rates and charges. It's frustrating but you can turn the tables and beat the card sharps at their own game.

Zero interest

Credit card issuers are competing to offer ever-longer zero per cent introductory rates on balance transfers and purchases. The most generous allow borrowers to transfer their existing card balance and pay zero per cent interest for up to 40 months, saving a small fortune in charges.

Existing customers are the ones footing the bill for this largesse with APRs of around 20 per cent, despite record low interest rates.


Minimum payment, maximum cost

Sky-high APRs punish the most vulnerable borrowers who can only afford to make the minimum repayment each month.

Somebody who borrowed £1,000 at an APR of 21.6 per cent and just paid the monthly minimum would take three years and three months to clear their balance, racking up £362 in total interest.

If you don’t clear your balance every month and are paying a double-digit APR, you should look to move on.


Price worth paying

Your first step is to check the APR on your monthly statement to find out if your loyalty is being abused.

The most attractive option then is to switch to a zero-interest balance transfer card. Visit an online comparison site to check out today’s best buys. Balance transfer cards typically charge a one-off fee of between 2.45 per cent and 2.99 per cent of the debt you switch. You might pay up to £29.90 to transfer £1,000 but that is usually worth it for more than three years of zero interest.

Otherwise you can find cards with no transfer fee, which typically have shorter introductory rates of around 20 months.

The problem is that you need a clean credit rating to qualify for the best deals, once again punishing the vulnerable.


Strike the right balance

Make a note of when your introductory rate ends at which point you should either pay off the debt or switch to another card before your APR shoots up.

Remember, if you make new purchases on your balance transfer card you will pay a full APR on that. So you might want a separate card that charges a zero per cent introductory rate on purchases as well.

Do not use zero interest cards as an excuse to rack up even bigger debts, as you will have to repay them in the end.


Lower for longer

Another way to fight back is to switch to a credit card that charges a low long-term interest rate.

A number of cards charge low standard rates of around six or seven per cent and while less eye-catching than zero per cent cards, they may prove better value in the longer run. In this case, loyalty does pay.