Borrowers to benefit from debt repayment change

By Joel Stanier – Financial specialist

MBNA, one of the country`s largest credit card issuers, has announced it will change the way debt repayments are `allocated` to borrowers` credit cards from 1st September this year - several months before the voluntary end-of-year compliance deadline agreed by the card industry, the Guardian reports.

The move means that thousands of credit card customers will save hundreds of pounds in interest on their debts.

`At the moment`, the Guardian reports, `cardholders who have transferred their debt to a card provider at a low or zero rate of interest, but buy items on the card at a higher rate of interest, are forced by card providers to pay off the cheaper debt first when they make repayments.`

This practice, according to Nationwide, `affects 9 million borrowers`, costing each of them an average of £225 a year.

The Government announced earlier this year that it would legislate against the practice, after a consultation found that most cardholders were not aware that they were being made to repay their cheapest debts first.

The consultation also highlighted various other areas that needed addressing - all of which will be acted upon voluntarily by the card industry by the end of 2010. The identified changes include:

• Re-pricing of existing debt. Card providers will introduce a 60-day notice period and borrowers will be told twice before any increase in interest occurs.

• A change in unsolicited credit limit increases. Any customer offered an increase in their credit limit will also be offered a 30-day notice period and a simple way to `opt out`.

• A minimum payments alert. Customers who repeatedly make the minimum repayment towards their debt will be contacted by their card provider, who will make it clear that this is the most expensive way of repaying their debt.

Try our debt solution finder

Answer a few simple questions and find out which debt solutions could help you, based on your circumstances.

Your Situation

Your total debt: Please select... £2,000 to £7,000 £7,000 to £12,000 £12,000 to £19,000 £20,000 +

Your location: Please select... England Wales Scotland Northern Ireland

Employment status: Please select... Employed full time Employed part time Self employed Unemployed Retired Student

Your email: (optional)

Your Details

First name: Surname: Telephone 1:

Telephone 2: (optional)

I agree to the privacy policy:

Please remember, this is just an information tool. We would always recommend you speak to a debt advisor for the most appropriate way to resolve your debt problems.

We'll give you an on-screen recommendation and call you. One of our advisors will be in touch to answer any questions you may have about your results.

Your privacy is important to us. All correspondence is held in the strictest confidence and we will only request information required to find your debt solution.

Tags: debt, debt repayment, credit card, credit cards, credit card repayments, interest

Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider. Cards are provided by third parties and are subject to eligibility, status and terms and conditions. Applicants must be UK residents aged 18 or over.