Use these credit cards to avoid this rip-off!

If you don't want to get stung by negative order of payment, make sure you use one of these seven credit cards...

If you've got a credit card, it's vital you know how to avoid a nasty trick adopted by most credit card providers called negative order of payment.

In a nutshell, if a credit card operates negative order of payment, any money you put towards paying off your credit card debt gets allocated to your cheapest debt first (i.e any interest-free debt like 0% on your balance transfer).

Meanwhile, any interest-bearing debt is allowed to sit on the card, racking up interest until you've paid off all the rest of the debt on the card. As a result, even on an interest-free card, you can end up forking out hundreds of pounds in interest.

Nasty, huh?

• Watch our video: Don’t get caught out by negative order of payment

Beat it at its own game!

One way to avoid negative order of payment is to use your credit card for one purpose only. In other words, use one credit card if you want to transfer a balance, and another credit card for spending. Because the debts will be separated, the credit card provider can't allocate your payments in a way that makes them the most profit. So you neatly sidestep negative order of payment.

Another option is to hunt out a credit card which operates positive order of payment – so the most expensive debts are paid off first. Unfortunately, only cards from Nationwide, Saga and the Co-op offer this option.

However, there is one other way to beat negative order of payment, and that’s by using a credit card which offers the same interest-free period for both balance transfers and purchases. In this case, both debts will be treated exactly the same, so you won’t have to worry about negative order of payment.

The chart below highlights seven credit cards which do just that:

Interest-free for a year

If you’re after the very best deal, the Sainsbury’s Finance MasterCard for Nectar card holders and the Virgin Credit Card offer the most competitive deal on both balance transfers and purchases. That’s because they both offer an interest-free period for 12 months. 

So that means you can transfer a balance from your existing credit card on to either of these cards, as well as use it for spending, without worrying about paying interest on either of these debts for a whole year.

Bear in mind that,as the name suggests, to qualify for the Sainsbury’s Finance MasterCard for Nectar card holders you will need a Nectar card. However, you can easily apply for a Nectar card online or pick up an application form instore.

We think the Sainsbury's Card has the edge over the Virgin card because, if you spend on this card, you’ll be able to start collecting Nectar points which will give you great discounts on your Sainsbury’s shopping or days out.

However, it is worth noting that the balance transfer fee is slightly higher for the Sainsbury’s card than for the Virgin card - 3% versus 2.98%. However, the APR for the Sainsbury’s card is lower at 15.9%.

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If you have a personal loan, or an expensive overdraft, some credit cards allow you to carry out what’s known as a money transfer. This means that you can transfer money from your credit card into your current account. You can then put this cash towards your overdraft or loan and still enjoy the same 0% interest rate you would on standard balance transfers.

Both the Virgin Money Credit Card MasterCard and the MBNA Platinum Dual Credit Card Visa allow you to do this, but note that the interest-free period is two months longer with the Virgin credit card.

However, the introductory 0% rate is only valid for money transfers carried out in the first 60 days of opening the Virgin account, whereas you'll have a slightly longer period of 90 days with the MBNA card.  

You will need to pay a 4% fee for money transfers with both of these cards and existing MBNA/Virgin credit card users are not eligible for either card.

Other options

The Halifax All in One MasterCard and the Bank of Scotland All in One MasterCard are two further options you might like to consider. These offer an interest-free period on balance transfers and purchases for 10 months. Although this is not as competitive as the Sainsbury’s Finance MasterCard for Nectar card holders and the Virgin Credit Card, these cards still have their benefits.

For example, if you don’t want to apply for a Nectar card, you won’t be able to apply for the Sainsbury’s Finance MasterCard for Nectar card holders - so that rules that option out. Again, if you have already had a Virgin card (which is provided by MBNA) or any other MBNA card, you won’t be able to transfer your balance to another credit card issued by MBNA. So you won't be able to apply for the Virgin card or even the MBNA Platinum Dual Credit Card Visa.

Recent question on this topic

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As a result, the Halifax and Bank of Scotland cards could be your next best bet.

Alternatively, if you like the idea of having a Sainsbury’s credit card, but don’t want a Nectar card, the Sainsbury’s Finance Credit Card MasterCard still offers a pretty competitive deal. Balance transfers and purchases are interest-free for nine months, and you don't need a Nectar card to get this card.

Just be warned that this card also offers 12 months 0% interest on all Sainsbury’s purchases. But while this might sound attractive, if you’re going to use your card for this, don’t use it for a balance transfer. Otherwise - you've guessed it - you will be caught out by negative order of payment!

For the over 50s

Finally, the Saga Platinum Credit Card is also worth looking at if you're aged 50 or over. This card offers a competitive interest-free period of nine months on balance transfers and purchases.

What's more, it has the added bonus that it's one of the few credit cards that won’t change you a foreign transaction fee if you use it abroad. So if you're off on holiday any time soon, this card could come in very handy! And out of all the credit cards in the chart above, it has the lowest APR at 11.9%.

So if you’re looking for a credit card which allows you to carry out a balance transfer and spend on it, and you don’t want to get ripped off by negative order of payment, make sure you choose one of these seven great credit cards!

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