Avoid getting stung by your 0% credit card
Do you avoid reading the boring small print on your credit card deal? Do so at your peril. It's the loop holes in that boring small print that could cost you dear.
One of the nastiest wheezes is called the 'payment hierarchy'. This is the order in which your debt is paid off.
One of the nastiest wheezes is called the 'payment hierarchy'. This is the order in which your debt is paid off.
Say you have transferred debt over from a previous card, put new purchases on the card and have a cash withdrawal. Each will attract a different rate of interest and a different set of charges. If you pay off some of the debt, which rates get paid off first?
You might think that the fair way of doing this is to pay of the portion of your debt that is charged at the highest amount. But then, if you think this, you've never read the small print.
For the vast majority of 0% credit cards, the payment hierarchy means that the order in which you pay debt off suits your credit card companies' balance sheet, not your financial wellbeing.
Recent research, based on the small print of 300 credit cards showed that just four (1%) had a positive payment hierarchy. One was on the borderline. That left 296 (99%) with the nasty negative payment hierarchy.
This is the reason why companies offer 0% credit cards for both balance transfers and purchases: the card providers want you to use the card for purchases and withdrawals too. And they're banking on you not reading the small print.
Added : Tuesday 19th February 2008 13:15
