In a nutshell, the APR – which stands for the Annual Percentage Rate – is the cost of borrowing on a particular card over 12 months and incorporates any fees. APRs vary between card providers and are often expensive – even the average sits at 17.32%.
To complicate matters further, the APR that credit cards have to advertise is the representative APR – and this isn't necessarily the one you’ll get. Representative APRs only need to be offered to 51% of successful applicants. If you are accepted and fall outside this category, the actual rate you will be offered (known as your personal APR) could be much higher. It will all depend on your income, expenditure, credit score and how much debt you have.
What’s more, when it comes to personal APRs, there is no legal requirement to display them – though some providers do at their own discretion.
It's not surprising then, that research by Consumer Intelligence shows just three in every ten (31%) customers are aware that credit card companies operate this personal pricing. But at least if you don’t like the rate you have been offered, the law states you have 14 days in which to cancel your agreement with no explanation.
But best of all, so long as you know what you're doing, there are a number of ways to avoid paying interest at all on your credit card debt at all. Here are five of them.
1. Shift existing debt to a 0% balance transfer card
If you already have debt on a credit card that's charging you interest, you can still avoid paying another penny more by shifting it to a 0% balance transfer credit card and paying it off over the time of the offer.
The Barclaycard Platinum Credit Card with Extended Balance Transfer, for example, charges no interest on balance transfers for 27 months. And, up until the end of June, the balance transfer fee is reduced to 2.98% from its previous 3.9%.
You won’t, however, be able to transfer debt across from an existing Barclaycard so, if this is a problem, take a look at the NatWest and RBS Platinum credit cards which offer 0% on balance transfers for 26 months (for a 2.65% fee) or the Virgin Money credit card which also offers 26 months at 0% for a 2.99% fee.
With all of these cards, it's important to clear your balance before the 0% window ends, otherwise you'll face a representative APR of 18.9% or 17.9% in the case of Virgin (all variable). If you're unable to do this, consider shifting your remaining debt to another 0% balance transfer card, but remember you'll have to pay another fee.
For a fee-free option, try the Tesco Clubcard Credit Card with No Balance Transfer Fee. It offers a much shorter interest-free shelter of 12 months, but the big advantage is there is no transfer fee.
2. Don’t pay interest on purchases
If you don’t have debt but are planning to spend on a credit card, a 0% purchase card will allow you to spread the cost of this spend over a number of months, interest-free.
For example, the Halifax 17 Month Purchase Credit Card charges no interest on purchases for a market leading 17 months. Alternatively, both the Fluid Purchase Card and the Tesco Clubcard Credit Card for Purchases offer 16 months at 0% on spending.
All three of these cards come with a representative APR of 16.9% (variable) which kicks in as soon as the 0% shelter expires. So be sure to pay off your balance in full before then.
3. Don't spend on the card when you have transferred a balance
Some credit cards will offer 0% on both balance transfers AND purchases. But spending on a credit card that you've transferred a balance to could result in sneaky interest charges.
If the 0% purchases window is shorter than the 0% balance transfer period, as soon as the purchases deal expires, some providers will charge interest on any new spending – even if you pay it off in full each month. This is because, as you still have your balance transfer debt to pay off, you are never really 'clearing your balance'. It's only once you have cleared this debt in full that you'll be able to avoid interest by paying off what you spend.
Put simply, it’s most cost-efficient to use a balance transfer credit card for balance transfers, and a purchase card for spending.
4. Set up a direct debit to clear your balance every month
If you clear your balance every month, and haven’t transferred a balance, you won’t pay a penny of interest – in which case you may as well get something back.
The Barclaycard High 5 Cashback credit card, for example, offers 6.00% cashback on your top five purchases for three months and up to 2.00% cashback on your top five purchases after that. You'll receive 0.50% cashback on everything else. And, if you apply before the end of June, the annual fee of £24 is waived for the first year.
Or, if you're a frequent flyer, the Lloyds TSB Premier Duo Avios credit cards allow you to collect Avios points as you spend and these can be redeemed on flights abroad.
However, these cards often charge high APRs – the Barclaycard has a representative APR of 19.9% (variable) and the Lloyds cards have a representative APR of 17.9% (variable) – so it's imperative that you clear your debt every single month.
You can make sure of this by contacting your credit card company and setting up a direct debit which will clear whatever your balance is every month.
5. Avoid withdrawing cash from an ATM
When you spend on a credit card, you usually won't have to pay interest on that debt for between 48 and 56 days. However, should you use your card to withdraw cash, this 'grace period' won't apply and you'll be charged interest from the moment you make your withdrawal.
Not only that, but the rate charged is usually much higher than it is for purchases. And, on top, you'll be charged a fee of around 3% of the amount withdrawn.
All in all, withdrawing cash on your credit card is a costly affair and is best avoided.
Please note: Any rates or deals mentioned in this article were available at the time of writing.