The majority (62%) of Brits owe money on a credit card but only one in five (19%) will consider a balance transfer to manage their debt
Brits wedded to their credit card will unnecessarily add an extra £5 billion in interest onto their debt this year – an average of £248 per person
On average, those looking to move their debt will transfer £2,479, but one in five (19%) admit they need to consolidate more than £4,000
A third (32%) of indebted Brits would happily pay a fee to secure a longer repayment period, rather than transfer their debt for free
Uswitch.com calls on Brits to use balance transfer cards to save money and offers top tips to use them wisely.
Twenty two million indebted consumers are set to pay an extra £5 billion in interest this year, as they shun transferring their debt onto a new credit card with a 0% interest offer, in favour of retaining their existing cards, according to the latest research from Uswitch.com, the price comparison and switching service.
Although the majority (62%) of consumers owe money on a credit card, only one in five (19%) say they are looking to consolidate their debt with a balance transfer. Almost one in five Brits say they would rather continue to use their existing credit card, despite the interest accrued – a decision which will cost the average consumer £248 in additional interest in 2018.
However, the research reveals that balance transfers are proving particularly attractive to those with relatively high debt burdens, with the average sum that consumers are looking to transfer amounting to £2,479, rising to over £4,000 for one in five (19%).
Nearly half (44%) of those consumers looking to complete a balance transfer say they will consolidate debts from across a range of credit cards and loans. Well over a third (40%) say balance transfers are the cheapest way to manage their debt, while 39% feel that they offer a sense of control.
With fees at a historic low, balance transfer cards are a useful resource for the millions who are increasingly struggling to get by as the cost of living rises and wages stagnate. With inflation now at 3.1%, Uswitch.com estimates that everyday bills have risen by 2.9% in a year, with the cost of running a home now amounting to almost £17,000 per annum.
Uswitch.com research found out that those most likely to use balance transfers are young people and those living in London, with one in four (25%) of 18-34 year olds, and over a quarter (27%) of Londoners, looking to complete a transfer in the next six months. Reflecting the squeeze on finances, almost a third (32%) of those looking to make a balance transfer also say they are prepared to pay an upfront fee, which can be anything up to 3% of the existing debt, to secure a longer 0% interest period.
Source: Uswitch.com, correct as at 16 January 2018
Tashema Jackson, money expert at Uswitch.com, says “Balance transfers can be a really useful way to manage your debt if used correctly. However, our research shows that many people are missing a trick and continue to pay interest on their debt rather than looking to transfer it to a credit card with an interest free offer.
“While using 0% interest balance transfer cards can provide invaluable breathing space for those seeking to clear their debt, they do require careful management. So while the introductory offers are still very generous, in some cases lasting 7-for more than three years, consumers must resist the temptation to use their card to make purchases as most will charge a high rate of interest on new any new debt.
“It also pays to double check the length of the interest free period, as you can be caught out by an unexpected hike in interest rates and the corresponding rise in your repayments.
“Setting up a direct debit to ensure that the minimum payment is met each month is sensible as if you miss a repayment, you could forfeit your 0% offer and see the interest rate jump up to 20%. Another useful trick is to set yourself a reminder for when the interest free period ends, giving you plenty of time to pay off your debt or transfer it to a different card before the interest is hiked.
“When searching for a new credit card, it is important to remember that each application will impact your credit report, whether you are accepted or not. To help prevent this, many comparison websites and banks now have an eligibility checking tool, which will tell you how likely you are to get a particular credit card, and allow you to make a better informed choice before applying for any new card.”
Find out how you could save over £1,000 a year with Uswitch here.
FOR MORE INFORMATION
Rory Stoves
Phone: 020 3872 5613
Email: rory.stoves@uswitch.com
Twitter: @UswitchPR
Notes to editors
Research carried out online with the Uswitch.com Consumer Opinion Panel between 2 January and 4 January 2018 amongst a sample of 2,005 GB adults.
When asked ‘Will you consider making a balance transfer in the next six months?’ 38% of respondents selected ‘N/A – I don’t have an existing balance on a credit card’. This means 62% of respondents have an existing balance on a credit card
Of the 62% who do have an existing balance on their credit card, 6% answered “Yes – within the next month”, 3% answered “Yes – within the next 2 months”, 3% answered “Yes – within the next 3 months”, 1% answered “Yes – within the next 4 months”, 0% answered “Yes – within the next 5 months”, 4% answered “Yes – within the next 6 months” and 2% answered “Yes – in over 6 months”. 6%+3%+3%+1%+4%+2%=19%.
Total UK credit card debt is £69.6bn (source: The Money Charity) divided by the number of adults in the UK 51,767,543 (ONS UK Adult population) equals £1,344.47. Taking a typical credit card interest rate of 19.9%, over the course of a year, that debt would incur an additional interest £248.58, assuming minimum repayments of 3% are being made on the credit card. With 62% of consumers holding existing credit card debt, and 19% considering moving their debt, this leaves the remaining 43% of consumers (22,260,043 UK adults) not seeking to move their debt. The average interest incurred on the average credit card debt £248.58 x 22,260,043 = £5,533,401,488.94 or £5.5 billion.
When asked ‘What is the balance of the debt you want to transfer?’, respondents who are considering making a balance transfer had a mean balance of £2,479 to transfer. 9% of respondents selected ‘£4,000 – £4,999’, 7% of respondents selected ‘£5,000 - £9,999’ and 3% of respondents selected ‘£10,000 +’. In total, 19% of respondent need to transfer over £4,000
When asked ‘When thinking about transferring a balance, would you rather:’ 32% of respondents who have an existing balance on a credit card selected ‘Pay a small fee and have longer to pay off the balance’
When asked ‘Why are you considering making a balance transfer?’ 22% of respondents who are considering making a balance transfer selected ‘Because I need to consolidate a number of different credit card debts’. 22% of respondents who are considering making a balance transfer selected ‘Because I want to consolidate a range of debt across credit cards and loans’. Overall this means 44% of respondents need to transfer a sum held across a range of credit cards and loans.
When asked, ‘Why do you think balance transfers are the best option to help manage your debt?’ 40% of respondents who are considering making a balance transfer selected ‘It saves me the most money, even if I have to pay a fee to transfer the balances’ and 39% selected ‘It means I’m more in control of my debt’
Based on Uswitch collated data on household bills. The average cost of running a household in November 2017 was £16,896.
When asked ‘Will you consider making a balance transfer in the next six months?’ 25% of respondents aged 18-34 said ‘Yes (within the next 6 months)’, 27% of respondents in London said ‘Yes (within the next 6 months)’
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