Credit That Doesn`t Cost A Penny
Although almost all credit cards provide an interest-free period to `full payers', this is never more than 59 days. To make the most of no-cost credit, you need a special kind of card...
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As I've said many times, when used wisely, credit cards are a very useful and convenient tool. However, in reckless hands, they become WMDs: Weapons of Money Destruction!
The big problem with credit cards is that steep rates of interest and a whole range of fees await the unwary user. Indeed, the interest rate charge by a typical credit card is 16.5% APR. Therefore, with the Bank of England base rate at just 5% a year, most credit cards charge interest at more than triple the base rate.
In other words, borrowing money on a credit card is to be avoided, even in the short term. Like personal overdrafts, most credit cards are simply too expensive. However, one way to avoid paying interest on a credit card is to pay off your bill in full every month. By doing this, your plastic becomes a tool for budgeting, rather than borrowing.
Credit for 45 to 59 days
If you always repay your monthly credit-card bill in full, say, by direct debit, then you won't pay a penny in interest. Indeed, you can benefit from an interest-free period lasting between 45 and 59 days.
For instance, with some credit cards, a repayment is due 14 days after a monthly statement is produced. Given that most months have 31 days, this gives you no-cost credit for up to 45 days. At the upper end of the scale, the most generous cards give you 28 days' grace before paying your bill. Thus, by cleverly timing your transactions, you can enjoy up to 59 days of interest-free credit.
The following table lists five credit cards with interest-free periods ranging from 45 to 59 days:
Card | Interest-free period (days) | Interest rate (% APR) |
|---|---|---|
45 | 16.9 | |
Smile Classic Visa | 46 | 20.9 |
Egg Money MasterCard | 50 | 12.9 |
56 | 18.9 | |
Cancer Research UK MasterCard | 59 | 16.9 |
A better way to avoid interest
To make the most of interest-free credit, you need to stop using normal credit cards. Instead, you switch to spending on a special kind of card known as a 0% on purchases credit card. These 0% cards provide you with an extended introductory interest-free period lasting from three to twelve months. According to The Fool's independent, unbiased search engine, these cards top the `0% on purchases' table at present:
Best Buy 0% on purchases credit cards
Card | 0% period | Usual interest rate (% APR) |
|---|---|---|
To 01/11/09 | 16.9 | |
Barclaycard Platinum Long Term BT M'Card/Visa | Ten months | 16.9 |
Ten months | 15.9 | |
Marks & Spencer Money MasterCard | Ten months | 15.9 |
As you can see, by spending on one of the above 0% cards, you can avoid interest for between ten months and a year. As you're not paying any interest during this introductory period, you should set up a direct debit for your minimum monthly repayment, typically 2% to 2.5% of the balance. By doing this, you take maximum advantage of the interest-free credit on offer. In addition, you can be sure that your repayments are made on time, so your 0% deal won't be scrapped for non-payment.
In summary, if you've got a big purchase coming up, then try paying for it with a 0% on purchases credit card. By doing so, you can dodge interest well into 2009!
Two more top tips
1. Make sure that you put aside enough money to pay off your entire balance when your 0% deal ends. Otherwise, you'll pay paying standard rates of interest on your borrowing.
2. Never use a credit card to withdraw cash at an ATM or over the counter. The fees and interest rates linked to cash withdrawals are extortionate!
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