- 03
- Jul
Despite strong indications that consumers are improving their spending habits and the popularity of debt management programs, too many consumers are still using credit cards to pay utility bills and consolidate other debts.
This is forcing them further into debt by turning lower interest debts into high interest unsecured loans. Several credit card companies have promoted credit card schemes, like switching cards, as positive methods of reducing debt. However, the hidden fees sink many card holders.
The balance transfer is the biggest money grabber. Zero balance-transfer fees on 0% balance-transfer deals look good, but the fee is not part of the 0% deal. All new purchases are subject to interest at the purchase rate. There is also a fee for not making a purchases within three months. In fact, some companies will discontinue the 0% deal if the card holder does not meet a minimum purchase balance.
Cards also increase the consumer’s credit limit, usually when they are strapped and need extra cash. The objective of this scheme is to force the client to transfer debts to the card, increasing potential profits for the financing company.
Some cardholders have even put their mortgage payments on their cards, or transferred low interest secured loans to high interest credit cards.
Fees attached to cash withdrawals, checks with handling fees that are as much as £50, and a sliding scale of fees, all increase a card’s balance, even if the consumer is not making new purchases.
This type of new scheme is allowing financing companies to turn down record number of new accounts, while still increasing their profits.
