Monday 26th of October 2009
Almost two-thirds of Britons with credit cards are unaware of a common charging method that could be costing them hundreds of pounds - something that can be avoided by opting to activate an individual voluntary arrangement (IVA) to repay debt.
Many consumers do not realise that when they make a monthly payment, all but two credit card companies in the UK use it to pay off the debt with the lowest interest rate, research by Moneysupermarket.com shows.
This could allow higher-rate debts to escalate out of control if payments are not large enough to also cover them.
Clare Francis, Moneysupermarket.com’s site editor, said: "Research shows that the current repayments hierarchy system is widely misunderstood by consumers and many end up paying more than they should in interest as a result."
A financial expert, as part of the IVA process, can put in place a repayment schedule that is based on what a debtor can afford.
IVAs could also be used to focus on different debts - and not only those with the lowest interest rates - making them ideal for people with a range of repayments that need to be tackled.
By Hayley Jones
- House price rise 'may not indicate recovery'
- Equity release 'needs to be increased'
- Need for IVA help could increase as expert predicts reduction in lending
- Government announces 'breathing space' for those needing IVA help
- Lack of subprime lending creating need for IVA help, expert suggests
- IVAS may offer helping hand to budget-busting Brits
