Credit Card 0% Deals Cut Down to Combat Debt Crisis

By: MoneyFacts

Customers looking to switch their debts from one interest-free balance transfer deal to another will now have less time to repay their debt before interest applies compared to a year ago. In February 2018, the Financial Conduct Authority (FCA) introduced new rules to tackle the issues surrounding persistent debt and gave providers until September to adhere.

Since then, research from Moneyfacts.co.uk can reveal that the longest deal available today on 0% introductory balance transfers is 32 months, down by five months since this time a year ago, when the longest was 37 months. This is a steady decline in lengthy deals and seems set to continue.

Despite the cut in the length of introductory 0% interest balance transfer credit cards, 32 months’ interest-free is still a staggering 16 months more than what was on offer ten years ago, when the top deal was for 16 months. The longest 0% deal ever seen peaked in 2017, when deals as long as 43-months were available*.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Considering that credit card providers were offering up to 37 months interest-free on balance transfer cards year ago, it’s unlikely to be a coincidence that their generosity with these deals has fallen since the FCA stepped in a year ago with new rules to tackle persistent debt.

“It is clear to see why rules were brought in to address the debt issues for consumers who have paid more in interest and charges than they have repaid of their borrowing over an 18-month period. Credit card debt in the UK hit £72.2 billion in December 2018, which translates to £2,634 per household on average, according to The Money Charity. Not only this, but the majority (54.1%) of credit card balances are bearing interest according to UK Finance.

“As the credit card market adjusts to the FCA’s rules, any borrowers who rely on credit cards to make ends meet would be wise to seek out some debt advice before it gets out of control. Card providers have the authority to cease the use of a credit card if the customer does not respond to the proposed changes in increasing their repayment, so this is worth keeping in mind if a borrower is unable to increase their repayment to pay off their debts sooner.

“Not only is the length of 0% balance transfer offers shrinking, but balance transfer fees are rising on average as well, which means the cost to the consumer is higher upfront and they have less time to repay their debts back without incurring interest.

“Any borrower who is looking to consolidate their debts by using a 0% credit card would be wise to set out an appropriate repayment plan and stick to it, but also be wary of upfront fees to transfer debts. The longest 0% balance transfer deals on the market may well be cut down further this year as the market faces economic uncertainties, so borrowers might want to act soon to snap up the lengthiest interest-free offers.”

*The Moneyfacts credit card data goes back to June 2006.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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