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The 0% credit card trap

Categories : Cash is trust
September 2, 2016
Tags : Card payments, Commercial bank, Cost of transactions, Distrust
Credit cards with no interest rate are not always a good solution and might be risky.
Communication Team / Equipo de Comunicación

In the FT, money management advisor Lindsay Cook warns against the risks associated with cheap credit card deals.

An increasing number of banks offer the opportunity to transfer credit and store cards debts to a unique 0% interest credit card, valid for up to 40 months.  The offer might seem irresistible, but one must remember that banks always come out as winners in the end. Indeed, a transfer fee is levied when the funds are transferred to the new card, ranging from 1,5 to 4%.

Moreover, big spenders who could avoid paying their debts will most likely come back to their spending habits quickly and go into debt again, to credit card providers’ great delight. Indeed, customers who fail to pay their credit card invoice on time or exceed their limit will lose their zero-rate card instantly and start paying at the full rate, which can be up to 30%.

In July, the Financial Conduct Authority’s published a five-year inquiry into credit cards, which concluded that 19 per cent of credit card holders who paid interest in the past 12 months had not expected to do so.

And in spite of falling interest rates the number of cards charging an annual percentage rate of 23 per cent or above increased, while the number charging low rates declined in the final quarter of 2015.

To read the original article, click here.