How to spread your costs and never pay interest

Christmas is a time to eat, drink – and spend lots of money, which is why many of us welcome in the New Year with an empty bank account. So how can we balance the books in January?

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The answer might come in the unlikely form of a credit card – but not just any credit card. The cure for the winter financial blues could be a 0% purchase deal.

Borrow money

Let’s say you want to buy something in the January sales, settle an unexpected bill or even pay for your supermarket shopping. If you don’t have the cash in your account, you could take out an overdraft, standard credit card or personal loan. In other words, borrow the money to tide you over.

High rates of interest

Of course, there’s nothing wrong with borrowing money if you can afford to pay it back. But the rates of interest can be high. The typical rate on a standard credit card, for example, is 19%. So, if you bought a £1,200 entertainment system in the sales on a card that charged 19%, you would pay interest of about £230 if you were to clear the debt within a year. In other words, the purchase would end up setting you back £1,430. 

Spread the cost

But what if you could borrow the money for nothing? What if you could pay 0% interest on your debt, so you would not pay a penny in interest? Your £1,200 entertainment system would then cost you £1,200. Plus, you could spread the cost to make the payments more manageable.

Interest-free

A 0% credit card works in much the same way as a standard credit card, but charges zero interest for a set period. The deals vary, but you could pay no interest for as long as 16 or 17 months.

When the 0% term expires, interest is charged at the normal rate. So, to make the most of your card you should aim to pay off the debt within the 0% period. Otherwise, you will start to rack up interest at the standard rate.

Direct debit

The easiest way to make sure you pay no interest on your borrowings is to set up a direct debit. Let’s say you buy the £1,200 entertainment system on a card that charges 0% interest on purchases for 12 months. If you set up a direct debit for £100 a month, you would clear the debt in 12 months and pay no interest – and you don’t have to stump up £1,200 upfront.

Penalty charges

You don’t have to set up a direct debit, but if you miss a payment or you make a late payment, you will have to pay a penalty charge. You also run the risk of failing to clear the debt in time. What’s more, your credit score can be negatively affected.

Spending spree

You can use your 0% purchase card to make more than one purchase, but you will obviously have to alter your payment schedule accordingly. If, for example, after six months you bought a washing machine for £600, you would have to increase your direct debit payments by £100 to £200 a month.

Credit limit

Take care not to breach your spending or credit limit. You should find details of your credit limit on your statement and if you spend more than the maximum, you will be hit by a penalty charge.

Balance transfers

You should also make sure you use your 0% card only for purchases as the zero interest deal usually applies if you spend on the card. If you want to transfer a balance from another card, it is probably best to take out a separate card that charges 0% on balance transfers – although some cards offer dual interest-free periods on both purchases and balance transfers.

Credit score

Credit card firms are happy to advertise 0% purchase cards, but they are not available to everyone. In fact, they are usually reserved for the customers with the highest credit scores. So, if you have struggled with debts in the past and you have blotted your credit record, your application might be turned down. Different providers use different scoring systems so you can apply for more than one card, but remember that multiple applications leave a footprint on your credit file which can make some wary. 

Alternative ways to borrow

A 0% purchase card can be a great way to borrow money for free and spread the cost of your spending, especially when money is tight. But a credit card is still a credit card – and if you don’t use it wisely, you could end up in serious debt. If you don’t think you can pay off any borrowings by the end of the 0% term you should perhaps consider an alternative form of credit, such as a cheap personal loan, or a card that charges a low rate of interest for the lifetime of the debt. 

Compare 0% deals

Don’t just plump for the first 0% purchase card you see. Make sure compare the leading deals at MoneySuperMarket. It’s quick, easy – and free.

Extra protection

Putting the cost of a major purchase – if it’s between £100 and £30,000 – on a credit card will also mean you are protected under the Consumer Credit Act, while the Consumer Credit Directive tops up this cover to £60,260.  This means if the goods turn out to be faulty, if they get lost – or even if the store goes bust and you never receive them – you can ask your credit card provider to reimburse you, even if you just put the cost of the deposit on the card.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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