PRN: Don't be Stung By Unnecessary Interest: Credit Card Versus Overdraft Debt

14/mag/2012 15.56.19 PR Newswire Turismo Contatta l'autore

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Don't be Stung By Unnecessary Interest: Credit Card Versus Overdraft Debt

 
[14-May-2012]
 

CHESTER, England, May 14, 2012 /PRNewswire/ --


  • Brits most likely to turn to savings, authorised overdrafts and plastic when running out of money
  • Avoid mounting interest and shop around for the best product for your needs

Brits running out of cash before pay day could be stacking up high interest by misjudging the way they use their credit cards and overdrafts as a backup, according to research* from MoneySupermarket.com.

The UK's number one comparison site asked consumers where they turn when they run out of money, and found savings, authorised overdrafts and credits cards are the top three 'go-to' resorts for backup cash. Over a third (38 per cent) dipped into their savings when they ran out of money, and 29 per cent used an authorised overdraft to boost their cash flow. In addition, a quarter (25 per cent) used a credit card to tide them over until the next payday. The results also found 20 per cent borrowed money from friends or family and eleven per cent extended an overdraft limit. Four per cent used a pay day loan when running out of money.

MoneySupermarket also calculated the additional amount in interest** those turning to credit cards and overdrafts would pay, and found someone using their authorised overdraft (after introductory offers) of £500 for one day with Halifax would accrue interest of £4 in a month, or £48 in a year. The amount of interest rises to a huge £300 if the same debt is left for 30 days, over half the original amount 'borrowed'. However, compared to an average credit card rate of 17.31 per cent** (once introductory offers had expired) spending £500 would incur a charge of £6.70 of interest over a month, or £75.46 in a year if only minimum repayments each month were made.

Kevin Mountford, head of banking at MoneySupermarket.com  said: "Many consumers are struggling to keep their heads above the water due to the high cost of living. The high number of people turning to their savings pots as a backup for extra cash is reassuring, given times really are tough. However, for those relying on credit cards or their overdraft as a fall back until pay day, as our findings show, it really does pay to research your options and think about the additional interest you could end up forking out beforehand. A balance transfer credit card could be a good option for those with existing debt on other cards, for example a zero per cent card such as Barclaycard's Platinum Credit Card with extended balance transfer offers 22 months interest free on transfers."

Women are more likely to fall back on their savings pot than men, with 40 per cent saying they have done so in the past compared to 35 per cent of males. Those unemployed said they have borrowed from friends and family first (35 per cent).

Kevin Mountford continued: "For those who are continually struggling to stay out of the red before pay day each month, I would advise spending a few minutes to check through all outgoings, in order to work out where savings can be made. Reviewing your personal finances to see where savings can be made can help you release vital cash which can help alleviate the financial pressure."

Notes to editors:

*Opinium Research carried out an online survey of 2,016 UK adults aged 18+ from 4th to 8th May 2012

**Tables to show overdraft interest and charges

     Based on Cost of GBP500 Overdraft after Introductory Offers             1 Day                                                    Authorised Overdraft                                                       Rate     Provider                  Account           (TYPICAL EAR)       Monthly     Annual                              Everyday Current   GBP1 per day capped     Santander                  Account        at 20 days per month   GBP1.00    GBP12.00                              Barclays Bank     Barclays                   Account               19.30%          GBP0.26     GBP3.17                                                 Up to GBP2,500 -                                                   GBP1 per day                             Reward Current    Over GBP2,500 - GBP2   GBP4.00      GBP48     Halifax                    Account              per day        (In-Credit) (In-Credit)     Nationwide BS            FlexAccount             18.90%          GBP0.26     GBP3.12     NatWest                 Select Account           19.89%          GBP0.27     GBP3.27      HSBC                     Bank Account            19.90%          GBP0.28     GBP3.36                                                  19.30% plus GBP5                                               overdraft usage fee                                               GBP10 interest free     Lloyds TSB           Classic Account Plus   buffer included      GBP5.26    GBP63.12        (table continued)                                        5 Days           15 Days            30 Days                              Provider     Account          Monthly  Annual  Monthly   Annual   Monthly   Annual                Everyday Current       Santander    Account         GBP5.00 GBP60.00 GBP15.00 GBP180.00 GBP20.00 GBP240.00                Barclays Bank     Barclays      Account        GBP1.32 GBP15.87  GBP3.97  GBP47.61  GBP7.94  GBP95.22                                                            Reward Current        Halifax        Account       GBP0.00  GBP0.00 GBP10.00 GBP120.00 GBP25.00 GBP300.00     Nationwide BS  FlexAccount   GBP1.30 GBP15.60  GBP3.90  GBP46.80  GBP7.80  GBP93.60     NatWest     Select Account   GBP1.36 GBP16.32  GBP4.09  GBP49.08  GBP8.17  GBP98.04     HSBC         Bank Account    GBP1.38 GBP16.56  GBP4.13  GBP49.56  GBP8.25  GBP99.00     Lloyds TSB  Classic Account                      Plus         GBP6.30 GBP75.60  GBP8.89 GBP106.68 GBP12.77 GBP153.24      Based on Cost of GBP1,000 Overdraft after Introductory Offers       1 Day                                         Authorised Overdraft                                              Rate     Provider          Account            (TYPICAL EAR)           Monthly       Annual                        Everyday Current     GBP1 per day capped     Santander         Account        at 20 days per month        GBP1.00      GBP12.00      Barclays    Barclays Bank Account        19.30%              GBP0.53       GBP6.36                                      Up to GBP2,500 - GBP1                                             per day                    Reward Current     Over GBP2,500 - GBP2     Halifax           Account               per day               GBP4.00        GBP48                                                                (In-Credit)  (In-Credit)      Nationwide BS   FlexAccount              18.90%              GBP0.52       GBP6.24     NatWest        Select Account            19.89%              GBP0.54       GBP6.48     HSBC           Bank Account              19.90%              GBP0.55       GBP6.60                                        19.30% plus GBP5                                       overdraft usage fee                                       GBP10 interest free     Lloyds TSB   Classic Account Plus   buffer included          GBP5.52      GBP66.24      (table continued)                                           5 Days           15 Days            30 Days     Provider         Account         Monthly  Annual  Monthly   Annual   Monthly   Annual                  Everyday Current       Santander        Account        GBP5.00 GBP60.00 GBP15.00 GBP180.00  GBP20.00 GBP240.00     Barclays  Barclays Bank Account GBP2.65 GBP31.80  GBP7.94  GBP95.28  GBP15.87 GBP190.44                   Reward Current        Halifax           Account       GBP0.00  GBP0.00 GBP10.00 GBP120.00  GBP25.00 GBP300.00     Nationwide BS   FlexAccount     GBP2.59 GBP31.08  GBP7.77  GBP93.24  GBP15.54 GBP186.48     NatWest       Select Account    GBP2.72 GBP32.64  GBP8.17  GBP98.04  GBP16.35 GBP196.20     HSBC           Bank Account     GBP2.75 GBP33.00  GBP8.25  GBP99.00  GBP16.50 GBP198.00     Lloyds TSB   Classic Account                        Plus          GBP7.62 GBP91.44 GBP12.85 GBP154.20  GBP20.70 GBP248.40  


Sourced by  http://www.MoneySupermarket.com  11.05.2012

Taking an average APR of 17.31% (BoE April 2012) you would pay the following:

£500 spend - Interest charge of £6.70 in one month or if you left this balance on the card for a year you would incur £75.46 in interest charges based on you paying a minimum repayment of 2.5% each month.

£1,000 spend - Interest charge of £13.40 in one month or if you left this balance on the card for a year you would incur £150.93 in interest charges based on you paying a minimum repayment of 2.5% each month.

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Paul Lawler
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