The 16 month 0% credit card showdown!

The 0% APR balance transfer card scene has got a little crowded of late - Robert Powell takes a look at which card you should have in your wallet.

It’s very easy at this time of year to swiftly rack up debts on your credit card, which can quickly balloon under high interest rates. But it doesn’t have to be that way! There’s now a good selection of cards that will grab hold of your credit card debt and not let interest come anywhere near it for a long time.

Ladies and gentleman, may I introduce the lovemoney.com balance transfer card showdown...

The contenders

Virgin has this month joined MBNA and Barclaycard as market leader by upping the interest free period on its balance transfer card to 16 months. The NatWest and RBS platinums are also up there, but these cards are only available to existing customers.

Here’s a table comparing how these cards stack up...

As you can see, the only real difference between the cards is money transfer rates and a slight variance in balance transfer APR. But if you’re using the card properly that shouldn’t matter anyway!

These cards are great for accelerating the rate at which you pay off your debts, as you won’t pay any interest in the first 16 months. So 100% of your payments will go towards ridding yourself of your credit card burden, instead of a big chunk of your payments heading straight into the credit card provider's pocket.

For those less acquainted with the practice of shifting your debt between credit cards (known as rate-tarting), the idea is it that you either pay off the debt before the interest free period ends, or if you need longer to clear the balance – transfer the remaining debt to another 0% balance transfer card at the end of the promotional 0% period.

But remember all these cards charge a handling fee of just under 3% when transferring a balance. For more about the downsides of becoming a rate tart, read Christina Jordan’s article A credit card for lazy people.

The purchase carrot

You really shouldn’t be making purchases on credit if you have a balance transfer card, as you should be focused on paying off your debt. But, as usual, those sneaky credit card companies have placed a carrot in front our noses to tempt us into spending. Yes, 0% for 3 months on purchases may sound good, but beware; the APR stick you’ll be hit with if you eat the carrot is a big one!

It’s all to do with a sneaky trick called negative order of payment. Say you shift £5,000 onto one of these cards using the 0% for 16 months balance transfer facility and then go out and spend £1,000 on the card using the 0% for 3 months purchase facility. You’ll want to pay off the purchases first, as it reverts to a high APR sooner – but you can’t.

Barclaycard, NatWest and RBS all state that you have to pay off the promotional balance transfer before you begin to clear any purchases. This means that you’ll be hit with a whopping 16.8% interest on that £1,000 purchase after the promotional three months at 0% has run out. What’s more, this interest will keep building up until your £5,000 balance transfer is cleared.

The good news is, we should see the back of negative order of payment from January as the government are legislating against it. At that point, you should be able to clear your purchases debt, but credit card providers can be pretty sneaky. Rest assured that lovemoney.com will have a full analysis of how all the card companies have altered their payment conditions and details of any new sneaky small print as the law comes into force.

But until January, the safe option is to only make minimum payments on these cards, as they're definitely interest-free until then anyway. Keep the rest of the payment you would have made in an easy access savings account until January and check back with us or your provider what will happen to your payment at that point. 

Money transfers

Money transfers allow you to shift money out from a credit card and into a current account, where you can spend it or withdraw it – allowing you to get your hands on a lot of cash very quickly.

All of the cards apart from the Barclaycard allow money transfers – however only the MBNA and Virgin cards give you a 0% rate, which is again for 16 months. It’s also worth noting that any money transfers made using the MBNA or Virgin cards will be subject to a 4% handling fee.

If you are going to use this facility make sure you transfer the debt to another 0% balance transfer card before the promotional rate ends or you’ll be hit with a staggering 20.9% rate.

All in all, the cards stack up fairly similarly – if you’re already with NatWest or RBS then it makes sense to stick with them, as they know your credit history and hence you’re more likely to get accepted. If you need a money transfer facility then the MBNA or Virgin cards are a good shout, but if not, Barclaycard is an equally wise move. You may find it easier to get accepted by Barclaycard than MBNA or Virgin.

If any lovemoney.com readers have had any of these cards in the past and can share their experiences of dealing with these credit card providers - the good and the bad - we'd love to hear about it!

More: The credit card trick that won't die Get a low-rate credit card for life!