Moneysupermarket.com editor Clare Francis talks with credit card expert Steve Willey about what to look out for when getting a credit card with an interest free period...
Video Transcript
Clare Francis: If you're looking for a credit card with an interest-free period there is no shortage of choice. Competition in the credit card market has become so intense that there are loads of deals offering interest-free periods for longer 12 months now. However there are some hidden catches so the unwary consumer could find themselves paying interest that they weren't expecting if they don't understand the small print.
Steve Willey, head of credit cards here at moneysupermarket.com is here to explain why.
Q1 - So Steve, what's going on?
Steve Willey:
Well there are different ways of using a credit card - balance transfers, purchases, cash withdrawals - and what's important to understand is the payment allocation on credit cards, so if you're taking a balance transfer offer, you use it purely for a balance transfer.
Q2 - But some cards offer interest-free periods on both balance transfers and purchases: are there any catches there?
Steve Willey:
Yes, it is important to look at which offers you the longest interest-free period. If the balance transfer is, say, for 12 months and the purchase period is for 6 months, then I would absolutely say only use it for a balance transfer. If you carry out purchases on that card, you will start accruing interest on those purchases after 6 months, and the way that payments are allocated means that you will be paying off the cheapest debt first, which is the 0% balance transfer.
Q3 - If you use your credit card for different ways, does it mean you should have a different card for each purpose?
Steve Willey:
Absolutely. I would recommend one card for your balance transfer and keep that separate, and then for all your ordinary spending as long as your minimum payment or you can pay the balance in full every month, then continue to use your card for spending
Q4 - And what about cash withdrawals, because obviously you can use a credit card to withdraw cash from an ATM, but often that's the highest rate of interest isn't it? Is there anytime when it's worth making a cash withdrawal?
Steve Willey:
Only when the interest rate is the same as the other rates on the card. Invariably that's not the case so we would recommend not using your card for ATM withdrawals, plus there are other fees that are charged for making ATM withdrawals as well as the interest rate.
Q5 - So it's a very expensive way of getting your cash?
Steve Willey:
It is, yes.
Q6 - And is there anything else that people should bear in mind when they're looking for a credit card?
Steve Willey:
The only thing to bear in mind now is to weigh up all the options in front of you before applying for a card, and the reason for that is to protect your credit rating. If you're applying for a number of credit cards at once, or over a period of time then you could find your credit rating diminishing, which is something we wouldn't encourage right now.
Clare Francis:
Thanks very much Steve. Hopefully that has made things a bit clearer for you. So really at the end of the day if you do need a credit card for a number of different purposes, its important to have a separate card for each different method of spending. It might mean that you have two or three cards in your wallet, but over the long run that could save you thousands of pounds in unnecessary interest.
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