Thrifty Loans

Credit card provider have tightened their lending criteria and increased the cost of borrowing, which will make life harder for consumers in the busy spending period leading up to Christmas.

It is forecast that the average spend on Christmas gifts will be £380, but consumers will need to tread carefully with their cards if it isn’t going to cost them a lot more. It is particularly important to avoid running up credit on store cards as almost half of these charge 25% interest.

Interest-free and 0% balance transfers without a fee have been disappearing off the radar, and all but Britannia Building Society charge a fee on balance transfers. Balance transfer fees have reportedly gone up by 0.59% from 2005 to an average of 2.73% in 2007. Many card providers previously capped this fee at £50, but now 96% of cards have scrapped a maximum charge. The average balance transfer fee has gone up from £36.88 in 2005 to £62.50 this year, with card borrowers paying an extra £459m in transfer fees in 2007.

Nevertheless, 0% balance transfers do still offer a way for customers to get themselves out of debt, and many people will use the tactic in January to extend the capability of the their spending power.

Personal finance expert at uSwitch.com, Mike Naylor, comments: “Now is the time to brave the maze and search out the best deal. That way if you do build up a balance on a more expensive card, you’ll be ready to switch and take advantage of the best interest-free offer.”

One competitive balance transfer deal is Egg’s 0% on transfers to October 2008, with a 3% fee. Similarly, Tesco has a 12 month deal with a 2.5% fee. Barclaycard Platinum has a 0% card for 13 months with a 3% fee. Britannia has a 0% balance transfer deal for five months without a fee.

One thing to be wary of is spending on a card you have transferred a balance to. Nearly all card providers apply high rates of interest to new spending. Repayments are taken off the cheapest debt first, so avoid spending on a transferred balance card