Should you go for the longest 0% credit card offer?

Credit card borrowers are spoilt for choice.

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As providers fight to offer the longest interest-free deals on record, borrowers can now shift existing credit card debt over to a 0% balance transfer card and pay zero interest on it for more than two years.

But the length of the interest-free deal isn't the only thing to consider. Balance transfer cards often require you to pay a percentage of the debt transferred – imaginatively called the transfer fee. Because these fees vary considerably, it pays to factor in these costs before you decide which credit card to go for.

For example, the longest 0% balance transfer deal right now comes from Barclaycard. Its Platinum Credit Card with Extended Balance Transfer offers a fantastic 26 months interest-free.

Tesco and Halifax offer the next best option, providing 25 months interest-free on balance transfers.

But where they really differ is with the fee. Barclaycard's offering comes with a hefty fee of 3.5%, Tesco charges 2.9% and Halifax is now refunding part of its fee, bringing it down to 2.5% from 3%.

So, if you have a lot of debt sitting on your credit card, are you better off transferring it to one with a longer 0% window or one that has a lower fee? Here, we investigate.

Fee vs interest-free offer

Let's say you have £5,000 of debt sitting on your existing credit card. You transfer it over to the Barclaycard Platinum Credit Card with Extended Balance Transfer, knowing you'll be able to enjoy a whopping 26 months interest-free.

Because the Barclaycard has a 3.5% fee, you'll be charged £175 for shifting over your debt to this card.

Say you can afford to pay off £150 of your debt every month – that’s £3,900 by the end of the interest-free period.

Because you won't clear your balance in full by the end of the 0% window (you'll have just over 8 months left), you'll then also be hit with an annual percentage rate (APR) of 18.9% (variable).

This means that, by the time you have cleared your balance, you'll have paid a total of £270.66 in interest and fees.

Yet if you transferred the same £5,000 debt to the Halifax 25 Month Balance Transfer Credit Card, your fee would be lower at £125. The APR is the same at 18.9% (variable). .

So if you paid off £150 each month, you'd have paid a total sum of £239.14 in interest and fees by the time you cleared your balance, making it cheaper than the Barclaycard.

But, the Tesco Clubcard credit card for balance transfers, which also offers 25 months interest-free, goes one better as it has a lower APR of 16.9% (variable). Transferring your £5,000 debt with the 2.9% fee the card charges means you'll fork out £145. Making the same £150 monthly repayments, £3,750 of which will be at 0% interest, you'll actually only spend £227.39 in interest and fees. So in fact, Tesco's card wins hands down.

This means that even though the Tesco card has a shorter interest-free period, it still works out to be better value.

Avoiding interest

Obviously the idea of applying for a 0% balance transfer credit card is that you clear your balance before the APR kicks in. So plan ahead and work out how much you would need to pay off each month to make this happen. For example:

  • To pay off a debt of £5,000 on the Barclaycard before the 26 months are up, taking the £175 fee into account, you would need to pay £199.04 each month.
  • To clear £5,000 on the Halifax card before the 25 months are up, taking the £125 fee into account, you would need to pay £205 a month.
  • To pay off £5,000 on the Tesco card before the 25 months are up, taking the £145 fee into account, you'd need to pay £205.80 a month.

Avoiding fees

If you are unable to clear your debt before the interest-free window has expired, it may be worth moving your debt to another 0% balance transfer card. But this will involve forking out another transfer fee. So, an alternative is to choose a card that has no balance transfer fee.

There are a number of cards on the market that allow you to side-step these fees, but in return you will have to pay interest on your debt.

However, the good news is the APR is usually far lower than the current credit card average of 17.32% and what's more, it's offered over the lifetime of the debt – so you won't need to worry about shifting your debt again in a couple of years.

The Sainsbury's Low Rate Credit Card, for example, has an APR of 6.9% (variable) and no balance transfer fee. Alternatively, the Barclaycard Platinum Simplicity card has an APR of 7.9% (variable) and again, no transfer fee.

Before you apply for any of these cards, it's a good idea to use our SmartSearch facility, which allows you to compare a range of credit cards as well as get an indication of your chances of acceptance for each without leaving a footprint on your credit file.

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.

We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact MoneySupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.

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