MONEY COMMENT
Switch To Interest-Free Cards

By Cliff D'Arcy
January 29, 2003

One thing that never fails to shock me is the interest rates charged on many widely held credit cards and storecards.

With the Bank of England base rate at a 40-year low of 4%, you'd think that card companies would be able to make a comfortable living charging, say, 9% a year. Don't believe it - some issuers charge us a whopping 30% for the pleasure of giving us credit!

Responding to various economic factors, the Bank cut interest rates seven times in 2001 to 4% from 6%. In spite of this, most credit card issuers still fleece their cardholders with sky-high rates.

For example, Barclaycard users that don't settle their bills in full each month face interest charges ranging from 11.9% APR to a staggering 24.9% APR (typically 17.9% APR). This is up to six times the base rate, the sort of deal you'd normally associate with loan sharks, pawnbrokers and Shylock himself.

US lender Capital One charges an APR of 29.9% APR on its Classic card, aimed at borrowers that have been declined credit elsewhere or have poor credit histories. At an interest rate 7.5 times the base rate, this looks like a guaranteed way to get vulnerable people deeper into debt.

Storecard issuers charge even more ridiculous APRs, as in the following examples (for payment by means other than direct debit):

Marks & Spencer:  18.9%
Argos:            25.9%
Harvey Nichols:   28.5%
Habitat:          29.0%
Bhs:              29.0% 
(no wonder Philip Green, Bhs' owner, is a billionaire!)

With additional charges or penalties for withdrawing cash, paying late, going over a credit limit, duplicate statements, etc., it's a wonder we use credit cards at all!

Now for the good news: we don't have to put up with these extortionate rates. In a quick search of the Internet, I found six issuers offering standard APRs below 10%, with the lowest standard rate from online lender Cahoot at just 7% APR.

Transferring your debt from one of the most expensive cards to one of the cheapest could reduce your interest bill on a debt of £1,000 from over £300 a year to around £70 - that's a saving of about £250 a year, or 25% of your entire debt.

Even more good news: thanks to fierce competition among card issuers, it's straightforward finding a card issuer that will allow you to transfer existing card balances with NO interest to pay for up to six months!

In another Internet trawl, I found no less than fifteen card issuers offering 0% interest on balance transfers, usually for five or six months after your account is opened.

By transferring your more expensive debts to one of these cards, you can temporarily slash your interest bill to zero for six months, giving you a valuable breathing space to pay down your debt as quickly as you can. Some issuers even allow you to transfer other expensive debts, such as overdrafts and loans, to a zero-interest deal.

However, try not to buy anything else on credit while you still have this debt, otherwise you'll be back to square one. Once your six months is up, you can switch again and so on, until your debt is cleared. Banks call these astute best-buy hunters "rate tarts" - welcome to the club.

To find out more on how to switch and save, visit the Fool's Credit Card Centre or our Get Out Of Debt Centre.