Credit cards you can trust

You can now enjoy generous interest-free periods on spending and balance transfers using just one credit card.

Here at lovemoney.com, we have warned readers numerous times against using a single credit card for dual purposes. This is because it could trigger a nasty hidden charge known as a negative order of payment.

Negative order of payment means the more costly debts remain on the card for longer, racking up interest. It occurs when you have a different 0% period for balance transfers than you do for purchases, or vice vera.

To avoid it, you either have to use one 0% card for a balance transfer and another 0% card for your purchases - or choose a dual purpose credit card which offers exactly the same 0% period on both your spending and your balance transfer. In this way, since your debts will always be charged at identical rates, you won’t get caught out.

Negative order of payment in action

This might all sound very technical, so here's a real-life example of negative order of payment:

Let’s say your balance transfer is charged at 0% for 12 months, but the interest-free introductory period on your card purchases only lasts for three months, after which it will be charged at the typical APR of 15.9%.

After three months has passed, your repayments will be used to reduce your balance transfer debt which is still being charged at 0%. Your purchases - which are now being charged at 15.9% - won’t even begin to be cleared until your balance transfer is completely paid off.

Depending on how much you spend on the card, this could cost you hundreds if not thousands of pounds in interest, and may far outweigh the interest-free benefits you originally took out the card to get.

That's why, until now, it's paid dividends NOT to trust your credit card provider to treat you fairly.

Credit card crackdown

The good news is, due to a recent government crackdown, card companies will be expected to alter the way repayments are allocated. This means by the end of 2010, your repayments will be used to clear the your most expensive debt first, which will reduce your overall interest bill.

And the even better news is that some credit card providers plan to adopt the new rules early, including the AA and MBNA. Both companies will switch to a positive order of payment on 1 September. 

Why wait?

But wait until the end of the year when you can get a credit card that won't try to trick you, right now? Until recently, the interest-free deals offered on credit card spending have never really been quite as generous as those available for balance transfers. But there are now several cards with 0% introductory periods on purchases that last for a whole year no matter what you buy.

Better still, these cards also offer a competitive interest-free period on balance transfers too. This means you can conveniently save interest on both types of borrowing using one card only.

So you can trust these cards when making purchases and balance transfers.

The table below shows the current best-buys in this category:

Top six balance transfer and purchases credit cards

You’ll see there are three credit cards which offer 0% periods on balance transfers and purchases which last a whole year. The deals are virtually identical except that the Virgin Money 12/12 Credit Card charges a slightly lower balance transfer fee of 2.98%, while the fee is 2.9% on transfers to the Barclaycard Platinum with Purchase and 3% on transfers to the Sainsbury’s Finance Mastercard for Nectar Cardholders.

If you only plan to use your new credit card for interest-free spending, the top three cards offer the most generous 0% deal on purchases. So they are still the best choice even if you don’t have a balance to transfer.

Things to watch out for...

Don’t forget the Virgin Money 12/12 Credit Card is issued by MBNA, and therefore you won’t be able to transfer a balance from another MBNA card onto it.

You should also note that you won’t be accepted for the Barclaycard Platinum with Purchase if you already have a Barclaycard. In fact, Barclaycard is pretty upfront about who their cards are suitable for. You should only apply if you have an income of more than £20,000 pa, a good credit rating and history, and total debts of less than 10% of your income (excluding a mortgage).

Meanwhile, the Sainsbury’s Finance Mastercard for Nectar Cardholders is only for Nectar cardholders. But this isn’t a stumbling block since you can easily apply for one at Nectar.com. Just make sure you use it because Sainsbury’s may check your Nectar account. If you haven’t swiped your Nectar card in the last six months your application for the card could be declined.

Finally, once you’ve chosen the right dual card for you, do everything you can to clear your debt within the 12-month introductory period. If you can't quite manage it, make sure you arrange to transfer your balance to a new 0% card before the much higher typical APR of at least 15.9% kicks in.

Compare credit cards at lovemoney.com

More: Good news about your credit card | Nine extremely long interest-free cards