Take on credit card stealth charges

THE fight is on. The stage is set. Let's get ready to rumble... it's time to take on credit card stealth charges.

As credit card bills from Christmas fall through letterboxes, millions will face an unexpected slap - and a dent in the pocket.

This isn't just about interest rates - pay the wrong way too and it can add thousands. Yet for once this ruckus isn't consumers in one corner versus banks in the other.

The Government also wants to crack down on these vile charges, and its final consultation on what to do closed this week. Thankfully, this included giving black eyes to the two nasties of minimum repayments and allocation of payments.

However, while we wait to see if politicians can land a knockout blow, if you've debts right now, I want to show you how to kick 'em where it hurts.

DANGER! MINIMUM REPAYMENTS

FOLLOW this route of only paying the minimum and you'll be grey by the time you've cleared the debt.

If a 20-year-old makes minimum repayments on a £3,000 17.9 per cent credit card debt, they'd be 61 when it would be clear, having shelled out £6,300 in interest (do your own calculation at www.minimumrepaymentcalculator.com )

Why so long? Monthly minimums are deviously set at two to three per cent of what you owe. That barely covers the interest cost, so the repayments hardly touch the actual debt.

How to beat it? Obviously by paying more, yet many say that is unaffordable. If so, fix your repayment at a set amount and don't let it drop as the debt does. In the example above, the first month's minimum is £60. Fix your repayments at that, and providing you don't borrow more, you'd be clear in seven years, costing £2,100 interest.

The exception: If you have more than one card, pay minimums on all but the one charging most interest. Shove every penny at clearing that as it's growing quickest. Once it has gone, switch to the next costliest.

The Government's options include "recommended repayments" where you automatically repay enough to clear the debt in three years.

IT AIN'T WHAT YOU PAY, IT'S THE WAY YOU REPAY IT.

Every card firm - except Nationwide and Saga - uses the following legal profit-bolstering system called "allocation of repayments".

Step 1: They charge different rates for different uses. So you pay higher or lower interest depending whether you spend, make balance transfers or withdraw cash.

Step 2: They suck people in with ONE cheap rate. For example, they offer 0 per cent balance transfers for shifted debt, but 20 per cent on spending.

Step 3: They tempt you to spend. While spending's at 20 per cent they offer Airmiles, reward points, cashback to entice you to do it too.

Step 4: WHAM! You're trapped! Balance transfer AND spend, and your repayments are automatically "allocated" towards clearing the 0 per cent balance transfer debt - meaning you can't repay the costly spending debt until that is cleared. So it sits there relentlessly clocking up interest.

HOW TO BEAT IT: If a card's got cheap interest for one type of transaction NEVER, ever, ever use it for anything else. Shift debts to 0 per cent cards but DON'T spend on them.

The real cost: Devastating. Spend £2,000 (at 15 per cent) on a card you've already shifted £2,000 to at 0 per cent for 16 months, and with £200-a-month repayments, the interest by the time it's clear is £480. Spend on a separate card, at the same rate, and you could focus your repayments at clearing this costlier debt first. Do that and the total interest almost halves to £280.

In fact, even using a card at a higher interest rate for spending is cheaper.

The Government's options include legislating to ensure costly debts are cleared first.

Credit charge busters

REJECT rate rises. For the last year, you've had a right to reject credit card companies' rate rises provided you don't want to borrow any more.

So if you receive a letter jacking your rate tell them to get lost. See www.moneysavingexpert.com/ratejacking for a full step-by-step guide.

Never withdraw cash on credit cards. The interest rate is often 20 to 30 per cent even on cheap cards. Worse, you will pay interest even when repaying in full at the end of the month.

Shift to cheaper rates. If you've a good credit score, never leave debts on standard rates. Shift them using balance-transfer deals of up to 0 per cent for 16 months or lock in at 6.8 per cent for life. See www.moneysavingexpert.com/bts for best buys.

Don't nearly repay in full. Repay in full and you usually don't pay any interest. Yet if you owe £5,000 and repay £4,999.99 many cards still charge interest on the whole £5,000! So if you're close to paying your card off try stretching to find the extra.

Protect yourself with a direct debit. Late or missed repayments have huge consequences - a £12 fine, possibly tainted credit score, and losing a 0 per cent deal and being shifted to the 20 per cent normal rate.

Always set up a direct debit to repay your debt. Even if you can't pay the same amount each month, set it to repay the minimum then top up with an additional cheque.

TV Money Guru Martin Lewis is the creator of the Consumer Revenge website www.MoneySavingExpert.com which is packed with info on how to get more money in your pocket.

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