One writer shares his experiences as a former 'rate tart'.
Keen readers of my Fool column will know that my personal finances haven't always been healthy. Although they're in pretty good shape these days, they were awfully messy for a long time. Indeed, although I've worked in financial services since 1987, I didn't really get my act together until I discovered the joys of Foolishness six years ago!
Anyway, my chief problem in my pre-Fool years was my remarkable ability to spend money which I didn't have. What's more, given that I had no savings, this extra money had to come from somewhere. Predictably, I turned to credit cards and personal loans to bridge the gap, building up a total debt of close to £50,000.
One of my biggest headaches (apart from scraping together enough money to meet my minimum monthly repayments) was the interest building up on my debts. Back then, it wasn't unusual for credit cards to charge a yearly interest rate of 20% or more, Thus, interest alone was gobbling up around £750 of my take-home pay each month. Ouch!
Nevertheless, I did what had to be done to rid myself of this crippling burden. I stopped overspending, sold what few assets I had, moved to a higher-paid job, and started throwing all of my spare cash at my debts. Naturally, after demanding -- and getting -- lower interest rates, I began by repaying my most expensive debt first. Once this was gone, I moved onto the next most expensive, and so on. Here at the Fool, we call this snowballing.
Fortunately, repaying my debts became much easier from Christmas Day, 2000, when online bank Egg launched the UK's first 0% balance-transfer offer. By transferring my existing card balances to Egg, I could avoid interest for six whole months. As you can imagine, I leapt at this chance, opening an Egg card within days of this offer being launched!
Fast-forward almost seven years, and the 0% balance-transfer market is alive and well. Indeed, it's never been more active. Then again, two big differences have emerged over the intervening years:
- 1. Early balance-transfer deals lasted for a maximum of six months. Now, deals lasting twelve, fifteen, (sometimes, eighteen) months can be had.
- 2. Early transfer offers were complete loss leaders, as they charged neither interest nor fees. These days, you will pay a fee for any 0% balance transfer lasting more than six months. Typically, this fee will be 2% to 3% of the value of each transfer, with no upper limit on the fee charged.
So, if 0% balance transfers are such wonderful beasts, then why is anyone paying interest on their credit and store cards? I can think of at least two reasons: First, ignorance. The financial world is a very complex place, and it breeds financial fear and apathy in the general population. Second, people look for excuses to avoid making financial decisions, such as "My credit record is no good" or "I don't know where to look". Thus, in other cases, it's down to `paralysis by analysis'.
Right, let's cut to the chase. If you have debts on your credit and store cards and would like to cut your interest rate to zero, then transfer your balances to a 0% card today. Aha, but which card is right for you?
Generally speaking, we're looking for the longest interest-free offer with the lowest fee. The good news is that the Fool's independent, unbiased search engine can do the spadework for you. Here are today's table-toppers:
The top five 0% balance transfers
Card | Length of 0% deal | Transfer fee | Typical APR (%) |
|---|---|---|---|
15 months | 2.98%/min. £3 | 15.9 | |
14 months | 2.50%/min. £6.25 | 14.9 | |
MINT MasterCard* | Until 01/12/08 | 2.50%/min. £5 | 14.9 |
13 months | 2.50%/min. £5 | 13.9 | |
13 months | 2.50%/min. £5 | 13.9 |
* choose from Classic, Gold or Platinum cards
So, there you have it: five 0% balance transfers lasting for thirteen months or more. All you need to do now is choose which card you'd prefer and how much you'd like to transfer across. Visit our credit card centre -- and kiss goodbye to rip-off interest rates today!
Here are some points to consider when you pick a 0% card.
- What's the fee?
The vast majority of 0% balance transfer cards now charge a fee, typically between 2 and 3%. Normally, we'd advise you to go for the lowest fee, but read on....
- What's the 0% period?
Many cards don't charge interest for 12 months, some for even longer. But the longer the interest-free, the more likely you'll be paying a high fee. So you need to decide how long it will take you to pay off your debt and then you'll know how long an interest-free period you'll need.
- Does the card have any "extras"?
Whilst you're paying off your debt, you shouldn't use the card for any other purpose, but once the debt is gone, you might want to use the card for conventional spending. Some 0% cards also offer rewards or cashback for spending, so you could be ready to earn your rewards as soon as the debt is paid off.