Cut Your Interest Payments Down To Zero

By Serena Cowdy | 29 May 2008

| 4 Comments

Do you have a personal loan - or perhaps an overdraft - that you're currently paying interest on?

Wouldn't it be nice to cut those interest payments down to nothing?

Well, maybe you can.

Many credit cards also allow you to transfer money - as cash - from the card into your bank account, which you could then use to pay off your loan or overdraft.

Unfortunately, credit card companies usually charge very high rates of interest on this sort of cash advance, higher than you would pay with most personal loans or overdrafts. So you're usually better off sticking with loan/overdraft you've already got. 

The good news is...

However -- and this is the good bit -- there are a few credit cards that allow you to transfer cash into your bank account and still take advantage of the card's 0% balance transfer benefits.

So, for as long as the 0% balance transfer deal lasts, you would not pay any interest on the cash you borrowed on the credit card.

This means you could use the money that's been transferred into your bank account to pay off the debts that are charging you interest.

This process is known as a ‘money transfer'.

Certain caveats do still apply: your credit card application might be rejected, the amount available to you is dependent on your credit score, and you'll usually need to pay a transfer fee of around 3% of the amount you borrow.

And of course, the card isn't interest-free forever. At the end of the 0% period - if you still have a balance on the card - you'll have to try and switch to another 0% deal, or start paying a very high rate of interest on the remaining debt.

However, if you're confident you can pay back the cash you borrowed within the card's 0% period, money transfer could save you a packet by plugging the flow of interest payments leaving your bank account.

Tip-top cards for money transfer

Only certain 0% cards allow money transfers. Here's a table showing the best ones I've found:

The best cards to use for money transfer are usually those that offer the longest possible 0% balance transfer period, combined with a reasonable transfer fee (of certainly no more than 3%). This gives you the maximum time to get that debt paid off.

As you can see, two of my three top picks are provided by MBNA.

The Virgin Money MasterCard offers you a nice long 0% period of 15 months, while the MBNA Platinum Plus Visa has a 0% period of just over a year, and a slightly lower transfer fee.

In fact, all MBNA-operated cards allow you to move money in this way. This includes lots of reward and charity cards, like the RSPCA credit card and most football-related cards.

A note of caution

Whichever card you choose, don't be tempted into spending on it as well. If you do, you'll fall into the negative payment hierarchy trap.

This is because 0% periods on new purchases are usually shorter than the 0% balance transfer periods offered by the same card.

And most card providers sneakily organise your repayments so your interest-free balance transfer debt is paid off first - leaving the most expensive, new purchases debt notching up interest until the last minute. Don't get caught out!

Finally, to make money transfer work for you, you really need to have had your ‘light bulb' moment.

Research suggests that the majority of people who consolidate their debts are so relieved that they just go on spending - so don't become a statistic!

More: Use This Credit Card To Beat The Crunch | Transfer Your Credit Card Balance For Free!