The 0% Credit Card Of The Year

Laura Starkey recommends you use this card to demolish your credit card debts.

If you have an outstanding credit card balance, it's likely that, after a year of bad news for borrowers, you're trying to pay it off. But demolishing credit card debts can be difficult -- especially when lenders seem determined to make the process as long-winded and costly as possible...

Rates aren't great

Despite the Bank of England's recent rate cuts -- which have slashed an incredible 2% off the base rate since October -- credit card providers have continued to increase the price of paying with plastic. According to Fool partner Moneyfacts, 16 lenders have increased interest rates on purchases since August, and 11 have increased balance transfer fees.

Adding insult to injury, lenders have also begun to tinker with their monthly minimum repayments (MMRs). Last month, HBOS cut the MMR on its credit cards to just 1% (or interest, any penalty fees and any insurance plus £5).

As most Fools will know, paying back an MMR this low could add years to the time it will take you to repay your debts -- and may cost you significantly more in interest during that period.

Of course, that's just the point as far as lenders are concerned. They're worried some people won't pay back their debts and that their profits will consequently suffer as we head into an economic downturn -- so they're squeezing the rest of us to make up for it.

Disappearing deals

Hopefully, if you have debts to deal with, you won't be repaying your lender the MMR. In addition, I hope most Fools out there are NOT being charged a standard rate of interest on their debts - and that you are instead on a 0% deal.

As `credit card tarts' have known for some time, 0% balance transfer deals allow you to bash down your borrowing by moving debt between cards that charge no interest. As soon as one 0% deal ends, you find another to replace it -- which means all the cash you throw at your credit card pays off your debt, rather than the interest being charged on it.

Yet fears for the future of 0% balance transfer cards have begun to abound, especially in light of lenders' recent tricks. At a time when some credit card companies seem determined to increase the cost of borrowing, promoting interest-free deals appears to have slipped down lenders' priority lists.

In the last month alone, 0% deals from Capital One, Royal Bank of Scotland, NatWest and Citibank have all disappeared -- which has sparked concern that other attractive offers will go the same way.

The credit card crystal ball

I believe it's impossible to predict what will happen in the credit card market. However, my Foolish colleague Neil Faulker forecasts a fairly bright future for balance transfers in this excellent article -- despite the imminent threat of recession.

Moreover, I don't think there's any reason to be despondent just yet. As I write this, 10 of the 14 lenders listed in Neil's October article are still offering 0% balance transfer cards -- and after all, you only need one 0% deal if it's the right 0% deal.

What's more, the current market leader is the best balance transfer card I can remember seeing -- which should do something to dispel the doom and gloom!

The nicest 0% offer

The Virgin Money Credit Card MasterCard is, in my opinion, the credit card of the year.

 It offers the longest 0% period currently available on the market, giving borrowers an amazing interest-free period of 16 months on balance transfers. This means that if you received your card and transferred existing debts to it on 1 December, you would pay no interest on your borrowing until 1 April 2010!

 It offers 0% on new purchases for six months. Spending within the promotional period will not be subject to negative payment hierarchy, as long as it is paid off in full before the special offer ends;

 Virgin Money also allows `money transfers' to this card, which means that overdraft and even personal loan debts can be shifted to it (as long as you are awarded a high enough credit limit). These will then be interest-free, as they'll form part of the 0% balance transfer promotion.

It is worth noting that the Virgin Money card does charge a fee of 2.98% for balance transfers. However, this is slightly lower than the typical 3% fee most lenders impose -- so, in my opinion, it shouldn't put you off.

However, it is important to be aware that the Virgin Money Credit Card MasterCard is part of the MBNA card `family'. This means that, if you already have a card issued by MBNA, you're unlikely to be accepted for the Virgin Money card.

Furthermore, since the credit crunch tightened up banks' lending criteria, it's become more difficult to get hold of new credit cards and loans -- and often, your credit rating will need to be high in order to qualify for a 0% deal. If you're in doubt, I'd recommend checking your credit file before you apply.

A `future-proof' alternative

I don't believe 0% cards are doomed, and I think decent balance transfer deals will be available for the foreseeable future.

However, credit card tarting requires commitment -- and confidence that the right deals will be available when you need them. If you're concerned about either of these things, a lifetime balance transfer card might be a better choice for you. Opting for a deal like this means you can transfer your debt to a card which charges a low rate of interest, for as long as it takes you to completely clear your balance.

Whichever type of card you choose, it'll be one in the eye for those credit card companies that insist on hiking up interest rates -- just when customers are feeling the pinch.

Good luck dealing with those debts!

More: Discuss dealing with debt | Learn how to tackle a large debt | Bag a balance transfer card