Get smart with your credit cards

If you’re paying interest on a credit card balance, it makes sense to find a way to stop.

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If you’re paying interest on a credit card balance, it makes sense to find a way to stop.

That’s where 0% balance transfer (BT) cards come into play.

If you pick the right BT card, you can move your money across and pay no interest for up to 43 months (although you will have to pay a fee - more on that later).

With the top deals charging no interest for more than three years, you have plenty of time to clear the debt without paying interest.

If you don’t manage to pay what you owe during that interest-free period, you’ll start to pay interest at the card’s standard rate, which could be 19% or higher.

Also, if you fail to make a minimum payment or bust your credit limit during the 0% offer period, you’ll lose the entitlement to the 0% offer and start being charged at the standard rate.

Top deals pegged back?

We’ve seen indications that card issuers are scaling back their interest-free offers after the Bank of England said over the summer that it is worried about the ongoing boom in credit card lending and increasing levels of personal debt.

The longest 0% interest period hasn’t changed - that’s 43 months with Santander’s All in One card. But this is an unusual card because it does not charge a balance transfer fee.

Most cards apply a fee of up to 3% of the amount transferred. In other words, if you transferred a balance of £1,000 you could expect to pay a fee of £30 if the fee were 3%.

Santander instead charges a fee of £3 a month, so here you’d be paying £36 a year for the card*.

* Representative example: If you spend £1,200 at a purchase interest rate of 15.9% p.a. (variable) with a £3 monthly fee your representative rate will be 21.7% APR (variable).

Downward trend?

With those cards that charge a percentage of the amount transferred instead of a flat monthly fee, the longest 0% deals have already dropped from 43 to 40 months, and the downward trend could continue if the Bank of England continues to express its disquiet about how much Brits are borrowing.

Among those providers that have reduced the length of their 0% balance transfer interest rate period recently are AA, Sainsbury’s, MBNA, Virgin, Post Office and Lloyds.

But if you’ve got expensive credit card debt, it makes sense to take advantage of an offer that enables you to eliminate interest payments for a certain amount of time.

That way you’ll know your repayments are clearing the debt itself, and not servicing the interest. Following that route, you’ll hopefully be debt-free sooner, and your finances will be on a sounder footing.

Golden rule

If you want to snap up a good deal sooner rather than later, the golden rule with any 0% offer is to pay off the debt before the 0% period expires.

If you don’t, you’ll start to rack up interest at the standard rate, which could be as high as 20.9%.

The easiest way to make sure you clear the debt in time is to set up a direct debit. For example, if you have spent £3,000 on a card that charges zero interest for 30 months, you could arrange a direct debit for £100 a month.  

Smart moves

If you are keen to apply for a 0% card, it’s worth knowing that card issuers tend to reserve the best deals for the best customers.

So, if you have a poor credit record, your application for a 0% deal could be turned down, or you could be offered a higher rate of interest or a lower 0% interest period.

Our Smart Search facility allows you to find out if you are likely to be accepted for a credit card before you apply.

Plus, Smart Search activity isn’t visible to card providers and lenders, so you can search without worrying that you are going to harm your credit score.

All cards subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply

 

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