Do you know the order in which your credit card debt is repaid?

A recent survey has revealed that many consumers in the UK have no idea how credit card companies allocate their repayments when they spread the cost of the their balance.

Consumers are also unaware that the order in which their credit card debt is paid off could be costing them a fortune in additional interest. Credit card companies allocated repayments in order to gain maximum financial benefits, which means that customers are the ones to suffer financially.

According to recent reports lack of knowledge with regards to how credit card repayments are allocated by credit card companies is costing consumers half a billion pounds each year.

Nearly 70%  of customers have no idea how these repayments are allocated according to the study, which was conducted by Nationwide. The adverse order of repayments that is used by most credit card issuers means that the cheapest debt is paid off first, and the more expensive debt is left to continue accruing interest.

New regulations that have been brought in by the government means that credit card companies will soon have to start listing just how repayments are allocated so that consumers are kept more informed with regards to how each repayment is distributed.

Over a quarter of those surveyed had no idea how repayments on credit card balances were allocated, and many even thought that the most expensive debt was repaid first. A number of respondents assumed that the repayments were made in date order.

It is for reasons such as this that consumers are advised not to use cards such as 0% balance transfer credit cards to also make purchases, as any repayments will be applied to the interest free debt first, leaving the transactions on which interest is charged to continue accruing further interest.

Tom Smith
7th July 2007