Avoid paying interest until 2012

Rachel Wait reveals some top ways to side-step paying interest until 2012!

Let’s face it, no one likes paying interest. Most of us like to earn it of course, but that’s a different ball-game all together. Fortunately, there are a number of financial products that allow you to avoid paying interest for a set period of time. In fact, in some cases, you’ll be able to avoid paying interest until 2012!

So let’s take a closer look.

Spend with a credit card

Spending on a credit card might sound like a way of guaranteeing that you’ll have to pay interest. But if you use your credit card in the right way, this is not the case at all.

In fact, by opting to pay for items using a 0% on new purchases credit card, you can avoid paying interest for up to a year or more – and that means you won’t have to worry about it until the start of 2012!

For example, the Tesco Clubcard Credit Card offers 0% interest on all purchases for 13 months. So you can spend away without worrying about the interest stacking up.

What’s more, if you collect Clubcard points, this credit card has an additional bonus. For every £4 you spend on the Tesco Clubcard Credit Card, you’ll earn one point, and on top of that, because your credit card doubles as a Clubcard, you’ll also earn standard points for any money you spend in Tesco itself.

Meanwhile, the Sainsbury’s Finance Mastercard for Nectar Card Holders offers a slightly shorter interest-free period of 12 months on purchases - but if you apply for it at the start of next month, you'll still have interest-free payments until 2012. Be aware that you need to be a Nectar card holder to qualify for the credit card but you can easily apply for a card online or instore.

Alternatively, the MBNA Platinum Dual Credit Card also offers 12 months interest-free on all purchases.

Although the Sainsbury’s Credit Card and the MBNA Platinum Dual Credit Card offer a month less of interest-free spending, they do have an advantage. Both of the cards also allow you to transfer a balance across from another credit card and enjoy 12 months interest-free on that debt. And because the purchases interest-free period and the balance transfer interest-free period are identical, you won’t have to worry about a sneaky trick known as negative order of payment.

Just be warned that you should try your hardest to pay off your debt in full before the interest-free period expires on all of these credit cards. If you don’t, the rate of interest on your card will jump dramatically (16.9% for Tesco, 15.9% for Sainsbury’s and 18.9% for MBNA).

Transfer your debt

If, on the other hand, you’ve already racked up a lot of debt on your credit card and you’re being charged a high rate of interest, you can move that debt over to a 0% balance transfer card and avoid paying interest well into 2012.

The table below highlights six of the most competitive deals on the market:

*Existing current account customers only.

**If you’re not an existing customer you can only apply in branch.

As you can see, there are plenty of 0% balance transfer cards that allow you to enjoy more than a year interest-free. I've only listed the top six here but there are several others that I haven’t even got space to mention (you can find them all here). So if you do have a lot of debt racking up a lot in interest, I’d urge you to move that debt onto one of these cards! Bear in mind, however, that you will have to pay a transfer fee.

What’s more, if you choose the MBNA Balance Transfer Card or the Virgin Money Credit Card MasterCard, you’ll also be able to carry out money transfers. This means you can transfer money from your credit card into your current account which you can then use to pay off an expensive overdraft or personal loan and still enjoy 16 months interest-free!

Again, just remember to pay off your balance in full before the interest-free period comes to an end to avoid getting stung!

Read more about these cards in The 16 month 0% credit card showdown!

Interest-free overdrafts

Overdraft fees and interest rates have been hitting the headlines a lot over recent months. So if you do frequently rely on your overdraft, make sure you’re not paying through the nose.

The Santander Preferred Overdraft Rate Current Account offers an interest-free overdraft for 12 months and the lender will match your previous overdraft up to £5,000. So if you apply for this account at the start of 2011, this will give you until the beginning of 2012 to enjoy an interest-free overdraft. Bear in mind that after that 12 month period, the rate of interest will jump to 12.9%.

It’s worth noting, however, that many lovemoney.com readers haven’t been impressed by Santander’s customer service. So if good customer service is your priority and you only need a fairly small overdraft, you could consider the First Direct 1st Account instead.

This offers an interest-free overdraft of £250 until 2012 and beyond (there’s no expiry date)! Bear in mind if you go over the overdraft limit, however, you’ll be charged an interest rate of 15.9%.

What’s more, if you switch to this account, you’ll be given £100 in cash! And if you decide you’re not happy with the account within 12 months, you’ll be given another £100 to leave!

Be aware you need to fund the account with £1,500 each month or take out a First Direct product, such as insurance, to qualify. Find out more in The worst banks for overdrafts.

So next time you think you’ll have to pay interest, think again!

More: Top four things to do before 2011 | 17 things you should never pay more than £1 for