Transfer card users run up more bills

Around 63 per cent of people who have taken advantage of a zero per

cent balance transfer offer admit they have then used the card to make purchases, according to financial website moneysupermarket.com.

This is despite the fact that nearly a third of those who went on to use the card for additional spending said they had not planned to do so.

The group warned that spending money on credit cards that have been used for balance transfers could cost people hundreds of pounds in interest because in most cases, repayments are used to clear the cheapest debt first.

As a result, repayments will not be used to clear any additional spending until the money that was transferred to the card at zero per cent interest has been cleared.

The group estimates that making a purchase of just 50 on a card to which a 2,500 balance had been transferred could cost up to 106 in interest over 12 months.

From the beginning of next year, credit card companies will be required to use customers' repayments to clear their most expensive debts first, but until then, many firms are continuing to use them to pay down the cheapest ones, enabling them to make more money through interest charges.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Despite this issue receiving a lot of publicity over the last few years, it is still worrying that many credit cardholders still make the crucial error on their cards of using them for both balance transfers and purchases.

"Although many cards advertise zero per cent rates for balance

transfers and purchases, the majority of cards only offer short-term deals for purchases. Once this deal ends, the outstanding balance is protected and will accrue interest at a much higher APR, typically over 18 per cent.

"The easiest way to avoid this mistake is to use two different cards, one for balance transfers and one for purchases. However, in a market where credit is difficult to come by, this is easier said than done."

He added that some credit cards do offer the same introductory interest-free period on balance transfers as well as purchases, while other providers, such as Nationwide, already use repayments to pay down the most expensive debt first.

Opinium Research questioned 1,933 British people between April 27 and May 3.

n MBNA announced this week it will start reducing cardholders' most expensive debts first from September 1.