It's a doddle to transfer expensive debts to a 0% credit card. Here's your one-minute guide to dodging interest.
Are you among the one in five credit-card customers who have transferred expensive debts to a 0% card? If you're not among this clued-up bunch, here's your 60-second guide to making the most of 0% cards:
Step one: check your existing debts
Grab your latest credit- and store-card statements and list all of your debts. Don't list them from largest to smallest balance, though. Instead, list them in order of the interest rate (APR, or Annual Percentage Rate), from highest to lowest. Obviously, by transferring the most expensive debts across first, you save more money. Of course, your new credit limit may not be high enough to transfer all of your existing balances, so you may need to pick and choose. Most expensive first, please!
Step two: check what's on offer
Essentially, there are three types of 0% card:
- Type one: "0% on balance transfers only" cards. Although these don't charge interest on transferred debts for an introductory period, they do charge interest on purchases. What's more, your repayments will go towards paying off your 0% debt first, so any purchases that you make will attract interest at anything up to 25% APR. So, these cards are only to be used for balance transfers, understood?
- Type two: "0% on purchases only" cards. These cards are no good for balance transfers, because they charge interest on transferred debts. Instead, they are great for shoppers, who can spend away for up to a year without paying any interest on their purchases.
- Type three: "0% on balance transfers and purchases" cards. These are the best of the bunch, because you won't be charged interest on transferred debt or everyday spending for up to nine months. Nice!
Step three: check how long the 0% deal lasts
Obviously, the longer, the better! For 0% balance transfer cards, the longest interest-free period currently available lasts for nine months. Occasionally, targeted campaigns offer a year or even eighteen months at 0%, but these are usually very short-lived. Aim to get at least six months at 0%, and anything more is a bonus.
Step four: beware of transfer fees, payment protection and other charges!
As I predicted last year, more and more 0% cards are charging fees on balance transfers, which can be as high as £50 per transfer. Ouch! I believe that this behaviour breaches the Consumer Credit Act, because you can't quote an APR of 0% if you charge any interest or fees on credit. I hope that the Office of Fair Trading will put pressure on these firms to change their terms, because I believe that they are misleading customers. For the record, firms that currently charge transfer fees include: Alliance & Leicester (MBNA), Barclaycard, all other MBNA cards, MINT (Royal Bank of Scotland, RBS) and Tesco Personal Finance (RBS again).
Read the small print of your card to see if any other charges apply. For example, a late payment could cost you £35 or lead to your 0% deal being withdrawn. Hence, it makes sense to pay your card's minimum repayments by monthly Direct Debit. Also, ignore over-priced payment protection insurance, which is a colossal con!
Step five: know your lender!
There are over 1,300 differently branded credit cards in the UK, but the vast majority are issued by just six card companies: Co-operative Bank, HBOS, HSBC, Lloyds TSB, MBNA and RBS. It's important that you know who you're dealing with, as this article explains! Apply too many times to the same company and you'll raise suspicions and start being rejected for credit, so tread carefully!
Step six: apply for your card and arrange your transfers
By the way, we have several Best Buys in our Credit Card centre at present, including:
Top 0% credit cards
from the Fool | | | |
|---|
| Card issuer | Balance transfer
deal | Purchases
deal | Typical or
standard APR |
| TUC (via Halifax) | 0% for nine months | 0% for nine months | 12.9% APR |
| Unison (via Halifax) | 0% for nine months | 0% for nine months | 12.9% APR |
| Virgin Money (via MBNA) | 0% for nine months | No special rate | 15.9% APR |
You can apply for any of these three cards via the Fool.
Some card issuers ask you for details of your balance transfers on their application form, which speeds things up. You'll need to provide your sixteen-digit card number and the amount which you want to transfer. Other card issuers ask you to provide this information online or by telephone after your account is open. After collecting these details, most lenders send the payments directly to your existing card accounts via BACS (electronic payments), although a few send cheques, which take a little longer. A few providers, such as Egg, will pay money directly into your bank account, so you can clear your overdraft or even push your account into credit.
Step seven: create lots of reminders as to when your 0% deal ends!
This is crucial! Smart 0% card players don't mess up by paying interest at sky-high standard rates after their interest-free deal ends. Once your balance transfers have been processed, ask your new card provider exactly when your 0% deal will end.
Record this date everywhere - for example, on the back of your card in marker pen, on your calendar, on a note on your fridge, in your diary and in Microsoft Outlook. Give yourself at least a week or ten days to pay off your remaining balance in full, or four weeks to open another 0% card and organise a transfer to it. Applying for a new card every six months or so shouldn't harm your credit rating or credit reference file.
Step eight: ahh, the sweet life as a 'rate tart'
If you get your act together, it is possible to 'surf' the same debt from one 0% card to another, which effectively gives you a long-term interest-free loan. Paying a minimum monthly repayment (which range between 2% and 3%) of, say, a flat 2% of your original debt , you should pay off even a hefty debt within, say, fifty months. Fifty months' interest-free credit on your debts what a triumph!
More: Find your perfect plastic in our Credit Card centre | Get a free online credit report.
