NatWest and Royal Bank of Scotland have withdrawn their 0% credit cards, replacing them with a new, 'simple' card. But are 0% cards really a recipe for disaster?
NatWest and Royal Bank of Scotland have pulled their credit cards offering 0% interest periods.
The banks had previously offered Platinum credit cards boasting 28 months of 0% interest on balance transfers, as well as all-round cards which came with 15 months of 0% interest of both balance transfers and new purchases.
However, as we explained last month, the RBS Group has decided to dump such ‘teaser’ rates on everything from credit cards to savings accounts in a bid to become the most trusted banking group in the UK.
Making things worse
Credit cards that offer 0% periods can prove pretty attractive. They offer you the chance to spread your payments, safe in the knowledge that every penny you pay each month goes directly towards reducing the size of your debt, rather than chunks being claimed by the credit card provider in the form of interest.
However, the RBS Group claims research shows that, rather than helping us clear our debt, 0% deals actually make the situation worse.
It noted that the average holder of a balance transfer card has around £9,000 in debt across multiple cards. And not only do they not manage to clear that debt during the 0% period, they actually end up increasing it.
More than a third of borrowers keep their balance on the 0% card for up to a year after the deal has expired, with an average balance of nearly £2,500. As a result they pay around £360 in interest.
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Replacing the 0% offers
In order to keep things simple, RBS and NatWest have launched the Clear Rate Platinum card.
It comes with a rate of 6.9% for balance transfers and new purchases, though it also has an annual fee of £24.
It's not exactly the most compelling credit card I've ever seen...
Making the most of a 0% card
RBS makes an important point with its latest move. If you don’t use them properly, 0% credit cards can be a recipe for disaster, serving to plunge you deeper into debt.
[SPOTLIGHT]But that's a big if. Use them properly and they don't “trap people in debts they cannot afford”, as RBS claims in its press release.
It just takes a little discipline. You work out how much you need to pay each month to clear the debt, and you set up a standing order to ensure you do just that. And if you don’t manage to clear the full balance by the end of the 0% period, you shop around for a new deal.
I speak from experience. It's how I paid for my wife's engagement ring and parts of our wedding.
If borrowers are getting further into debt as a result of misusing a 0% credit card, that’s their fault, not the card’s. Perhaps the answer is for credit card providers to be a little more choosy when it comes to accepting borrowers for interest-free cards, rather than ditching them altogether.
As I wrote last year in 'Teaser' savings interest rates to be investigated, whether it is a savings account or a credit card we all need to take a little more responsibility. Savers aren’t ‘trapped’ in dreadful savings deals as a result of bonuses offered on their balance for a year or two. It’s clear at the outset how long the bonus lasts for, nobody is being misled. If you are engaged with your money and make a note of when the bonus period ends, you can move your cash to a new deal and still get a good return (or at least, as good a return as is possible in the current dismal market).
It’s the same with a 0% deal. Make a note of when the 0% period is ending and make sure that, if you haven’t managed to clear your balance, you move your remaining debt to a new interest-free card.
I’m all for banks being more responsible with their lending. But it’s also up to you and me to more responsible with our borrowing.
What do you think? Are RBS and NatWest right to pull their 0% credit cards? Does the Clear Rate Platinum card represent an improvement?
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