Repayment savings for credit card holders
New regulations on the repayment of credit card debts could see people making significant savings.
As from 1 January 2011, the law will forbid credit card companies from choosing the order in which credit card debt is repaid.
Currently, credit card providers move payments to the cheapest debt first, allowing more expensive debts to accumulate interest payments over longer and more profitable time periods.
The Office of Fair Trading has judged this to be against the interest of consumers.
According to Moneyfacts, the financial information website, the change will mean that a borrower with a credit card balance of £3,000 at the outset, repaying at £100 per month, would see the interest charged over the life of the debt fall by £485 to £670.
Michelle Slade of Moneyfacts said: “This news couldn’t have come at a better time for those customers facing large bills after Christmas.
“Changing the order debt is repaid will save consumers a small fortune in interest charges. While these changes will benefit consumers, card providers will lose out.
“Not being able to hold expensive debt back is bound to dent the revenue streams of card providers and we may see increased charges creep in to recoup the losses.
“Many of the largest credit card providers are leaving it right up to the last minute in order to squeeze as much extra interest out of customers as possible.”