Why you don't need a 0% credit card

An interest-free card is not the answer for all borrowers.

Going through my post last night I found a letter from Halifax, the bank with which my wife and I have our joint account. And lucky old me! Apparently I am ‘guaranteed’ to be accepted for a credit card, offering 0% interest on purchases for 12 months and 0% interest on balance transfers for nine months.

It’s not the worst card in the world, and I have to admit I was a little tempted. After all, Christmas has been expensive (and it hasn’t even happened yet) and with my wife not yet back at work from maternity leave, money is a little on the tight side.

But a 0% credit card is not always the answer for borrowers.

Manageable chunks, for a while

Moving your debt to a 0% balance transfer card is lovely, for a while at least. You can cut that debt down into manageable chunks, and all of the money you pay goes completely towards the debt, rather than on interest payments.

For example, after my wedding, I put about £1,500 on an HSBC card which gave me 15 months of 0% interest. At £100 a month, that made life a lot easier.

But what if you have larger debt to move over? If I had moved £5,000 onto that old card, I’d have been looking at £333 a month in order to clear the debt before the interest-free period expired. That’s a pretty tall order.

And that’s even before you consider the fee that you’re charged in order to transfer the balance over in the first place, often around 3%. On a £5,000 transfer, that’s a fee of £150, hardly small change.

It’s much the same if you’ve made use of a card offering 0% on purchases (though obviously there’s no transfer fee to worry about).

A low rate for life

If you come to the end of your 0% period, you then face a dilemma. You either move your debt to a new card, going through all the hassle of shopping around, applying, then paying yet another fee to move your debt onto the new card. Or you start paying interest of 19% (or even more) on your remaining debt.

There’s a third option though – a card which offers a low rate of interest for life.

Yes, you will pay interest on your debt, but at a far lower level than with a normal credit card. And what’s more, you won’t have to pay a fee for transferring over your balance.

Over the long term you may end up spending less, and clearing your debt quicker.

A card for life, not just for Christmas

What I like about these cards is that they are really a long-term option. Something that has always concerned me about balance transfer cards is that there may be limits on when you can transfer debt onto the card – typically you can only do so in the first couple of months after getting the card.

But what happens if some unexpected expense – a new boiler for example – crops up six months down the line? Do you really want to take out yet another card?

There’s no such problem with low APR cards.

You can simply add to the balance, whether by purchasing directly with the card (as the rate of interest is identical on both purchases and balance transfers) or by using another card, and then moving that balance over.

The best low APR cards

There are just a few low APR cards worth considering:

Sainsbury’s Low Rate MasterCard
The Sainsbury’s Low Rate Mastercard is the market-leader, with a representative rate of 6.9% APR. However, in reality, if you’re accepted for the card you’ll be offered one of three rates – 6.9%, 9.9% or 12.9%, depending on your circumstances. Just 51% of those accepted for the Low Rate MasterCard are offered the lowest rate.

You’ll also have to have a Nectar card, though you can get one free here.

Barclaycard Simplicity
The Barclaycard Simplicity comes with a slightly higher rate at 7.9%, though there isn’t the variance in the rate you’ll be offered that you get with the Sainsbury’s card. An added benefit of the Simplicity card is that the spending you do on it will see you earn Reward Money as part of the Barclaycard Freedom scheme. That Reward Money can then be spent directly with participating retailers such as Shell, Pizza Express, npower and Halfords.

Personally, I think I prefer the Simplicity card.

Capital One Click Card
Finally, there’s the Capital One Click Card, a card designed for people that do a lot of shopping online. Using the card will see you get discounts at places like Ted Baker and Zavvi, but most important of all purchases and balance transfers will enjoy a rate of just 9.9%.

The right card for you

If you can clear your debt within the 0% period on offer, then of course an interest-free balance transfer card will likely by your first choice. For a full run down on the best 0% balance transfer cards, read Credit cards from the best 0% balance transfer providers with low fees.

But those cards are not for everyone. If you don’t fancy applying for new cards every couple of years, and instead just want a simple card with a nice, low rate for life, then a low APR card should be on your radar.