The 0 per cent monster is put back in its cage

It's 'rate tarts' beware, writes Sam Dunn, as lenders end the party for credit card users who keep moving their debts

Savvy credit card users have a fight on their hands. Where once so-called "rate tarts" freely switched their debt from one piece of plastic to another - to take advantage of introductory 0 per cent balance-transfer deals and so avoid paying any interest - they now face upfront fees of 2 per cent to do so.

Savvy credit card users have a fight on their hands. Where once so-called "rate tarts" freely switched their debt from one piece of plastic to another - to take advantage of introductory 0 per cent balance-transfer deals and so avoid paying any interest - they now face upfront fees of 2 per cent to do so.

Last year's trickle of lenders levying the charge on transfers, which ranges from £2 to £35, is in danger of turning into a stream.

During the past three months, lenders including Mint, Alliance & Leicester and Tesco Personal Finance have slapped the fee on to balance transfers, following the trend set by Barclaycard in 2004.

And for the past two weeks, the Halifax has been experimenting with the fee too. Its website has been promoting its One credit card with a 0 per cent balance transfer deal extended from nine to 12 months - but with a new 2 per cent charge.

However, in branches and over the telephone, the Halifax has been offering its nine-month 0 per cent deal as usual.

"We want to see if there is an appetite for [the extended] deal," says spokes- man Mark Hemingway.

Consumers need to watch out for more than just an upfront charge. For example, Virgin Money's 0 per cent deal on balance transfers for nine months has no fee when you first take it out. But if you later switch another debt on to the card, you'll have to stump up a 2 per cent fee (capped at £35).

Free transfers are fading away as lenders try to recoup the cost of offering money for nothing. Their original hope had been that once new customers had been tempted in with the offer of cheap debt, those who hadn't paid off their balance would stick with their card and carry on borrowing at the much higher standard annual percentage rate (APR), often as high as 14.

What hadn't been anticipated was the swarms of sharp shoppers who sprung up to exploit the intense competition among card providers by recycling their debt from one company to another.

"[Lenders] have created a Frankenstein's monster with these 0 per cent deals," says Stuart Glen- dinning of the price-comparison website moneysupermarket.com. "They educated consumers to the benefits of these deals and switching debt, and now it's a bit of a curse."

It's an expensive one, too. Lenders are losing £80m a month - nearly £1bn a year - thanks to customers flitting between the best deals, according to a new report from Professor Merlin Stone of Bristol Business School.

He predicts the demise of the rate tart as companies come down hard on serial switchers. "Some providers can't sustain their current 0 per cent offers, which means they may have to remove them or introduce new charges to help cut their losses."

Consumers might be surprised to hear of lenders' difficulties in the credit card market, given the enormous profits made elsewhere.

But Professor Stone's research also underlines the extra cost being borne by lenders as they try to win new customers. In the 12 months to June 2004, the money spent on marketing rose by nearly a half, his report says. In the future, consumers should expect greater efforts by lenders to engender loyalty, such as offering a lower, flat rate of interest.

In the meantime, our appetite for credit is still growing. In February, Britons owed £54.8bn on credit cards - up from £54.1bn in January and £53.2bn in December, says the Bank of England. Fuelling this demand, money- supermarket.com reports, are the 66 introductory 0 per cent offers still available, on both balance transfers and new purchases.

But Mr Glendinning expects that consumers will soon have to pay for any 0 per cent transfer deals longer than six months. He also cautions that fees could be levied across the board in the future. "If you have an expensive card and have yet to switch to a 0 per cent deal, do it now."

When you switch, don't forget that monthly repayments often pay off cheaper balance transfers first and leave interest building up on new purchases. Not all cards do this, so check carefully.

Additional reporting by Emer Timmins.