Earlier this week, it was revealed that credit card borrowing is on the rise, partly thanks to the cost of living crisis. So, if you need to borrow on plastic, how can you do it in the right way? Let’s take a look.
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How has credit card borrowing increased?
According to data from the Bank of England, credit card borrowing increased by £1.5 billion in February. This is the biggest jump in borrowing ever recorded. To put it into context, the combined total of consumer credit balances in the UK now stands at £199.5 billion.
While these sums may seem staggering, it is clear that many consumers are now struggling to pay their bills given the UK’s current cost of living crisis. Sadly, now that ‘awful April’ has arrived, things aren’t about to get any easier for those already struggling.
During April, the cost of energy, National Insurance, water bills, and council tax, will all increase for the majority of the population.
How can you use 0% credit cards the right way?
With the rising cost of living, you may be in the unfortunate position of having to borrow to keep your head above water. However, the good news is that 0% purchase credit cards can offer a way to borrow at no cost, as long as you use them in the right way.
So, if you’re looking to take out one of these cards, ensure you stick to the following five rules.
1. Clear your entire balance before your 0% period ends
If you’re accepted for a card with a long 0% period, you’ll be able to spend interest-free for a number of months. However, once the 0% period is up, bog-standard interest will apply to your balance.
So, to avoid paying interest, ensure you clear your total balance completely before the end of the 0% period. If you can’t do this, then you should at least look to shift your debt to a 0% balance transfer credit card.
2. Stick to your credit limit
When you’re accepted for a 0% credit card, you’ll be given a spending limit. You must stay within this limit in order to keep your interest-free period alive.
If your limit is low, you can always ask your lender to increase it. Some lenders will automatically raise your limit after a few months.
3. Don’t withdraw cash on a 0% purchase card
Unless you have a specialist money transfer credit card, withdrawing cash is usually a very bad idea. That’s because cash withdrawals are rarely part of any 0% deal, so you’ll typically be hit by a host of fees and charges.
In other words, if you do manage to bag a 0% purchase card, only use it for spending and never to take out cash.
4. Always make at least the minimum monthly payment
While 0% credit cards allow you to borrow interest-free, you still have to make the minimum payment every month. If you don’t, then you could lose your 0% deal.
The easiest way to do this is to set up a direct debit when you first open a credit card account.
5. Don’t use a 0% card as an excuse to overspend
While a 0% credit card might provide you the opportunity to borrow thousands of pounds, never use these cards as an excuse to spend more than you normally would.
If you don’t follow this rule, your balance could get out of control, increasing your risk of paying hefty interest in the future.
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What 0% purchase credit cards are available right now?
Right now, it’s possible to borrow interest-free for up to 24 months with Sainsbury’s Bank. However, some poorer credit scorers may only be offered 16 months at 0% or may be rejected for the card altogether.
If you’re accepted, as an added bonus, you’ll also earn two Nectar points for every £1 spent at Sainsbury’s, as well as 500 points for every £35 you spend at the store during your first two months, up to a maximum of 5,000 points. The card has a representative APR of 21.9%.
If that’s not for you, then Barclaycard also offers 24 months at 0%. Like the Sainsbury’s card, those with poorer credit scores may be offered fewer interest-free months. The card’s representative APR is 21.9%.
For more options, take a look at The Motley Fool’s top-rated 0% purchase credit cards. If you’re keen to see which cards you’re likely to be accepted for before applying, then you can use our credit card eligibility checker.
