The research, from moneysupermarket.com, found that the majority of credit card holders are unaware of a charging mechanism which could be costing them hundreds of pounds.

"Our 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,” said Claire Francis of moneysupermarket.com, before highlighting the importance of reading and understanding credit card terms and conditions before being caught out.

"Only two providers, Nationwide and SAGA, use positive repayment hierarchy, which demonstrates good practice that is in the interests of the consumer”, she said.
“Credit card providers will argue that changing this system will lead to the loss of low rate or zero per cent deals; however these offers only benefit a relatively small number of customers.”

Credit Cards – How Credit Cards Work

Consumers might think it is logical that a monthly payment towards an outstanding debt would go towards paying off the balance with the highest interest rate first. However, most credit cards do not operate on this basis. In fact, all but two credit card providers in the UK work on a low-to-high repayment hierarchy (negative payment hierarchy) basis - where the cheapest debt is cleared first.

However, research from moneysupermarket.com shows that just 34 per cent of credit card users expect providers to pay off their cheapest debt first.

When confronted with the negative hierarchy of repayments, credit card holders feel cheated (37 per cent), angry (29 per cent), confused (17 per cent) or worried (7 per cent). Only nine per cent say they are not bothered by this system.

Analysis discovered that if consumers incorrectly use a card with negative payment hierarchy they would pay almost twice as much in interest on a £3,500 debt compared to a card with a positive payment hierarchy.

“A credit card is a flexible product and the negative payment hierarchy stifles this flexibility, as consumers who carry a transferred balance on their card have to look to another card to make purchases,” continues Francis.

“Changing the repayment hierarchy should lead to fairness for all customers who will be able to use this flexible product in the way it was intended.”

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