Credit-card companies make millions from us with this devious trick, even if we believe we're on a 0% deal. Here are three ways to avoid it.
In 99% Of Credit Cards Use This Dire Trick, I explained how credit-card companies manage to charge you loads of interest, even if you have a 0% deal running.
Provided you don't use your card for cash advances (e.g. withdrawing cash) or credit-card cheques, you can avoid that trick, called 'negative payment hierarchy' if you pay off your bill every month. We hope you do that! If you can't do so, though, here are three ways to get around it.
1. Use different credit cards for different types of debt
Usually, credit cards offering 0% interest have different length deals for balance transfers and purchases. You might, for example, get 12 months interest free with balance transfers, but only 3 months for purchases. If you make a new purchase and do a transfer, any repayments will first go to the transfer. This means that after three months, if you haven't completely cleared your balance, you'll start paying interest on the purchase.
Therefore, if you want to make a new purchase and transfer a balance, the best way is to use two different credit cards. By keeping your debts separate, you can use 0% deals without worrying about interest.
The very best cards in the whole market for 0% balance transfer deals right now are:
- The Virgin Money MasterCard, with a 15-month deal and a 3% fee (actually it's 2.98%, but let's not fall for that old trick);
- The Barclaycard Platinum Credit Card, with a 14-month deal and a 2.5% fee;
- The Mint MasterCard, with a deal lasting roughly 13 months (till 1 December 2008) and a 2.5% fee;
- Several of NatWest's and Royal Bank of Scotland's credit cards, with 13-month deals and a 2.5% fee, and;
- The Dunfermline Building Society Black/Platinum cards, with a 12-month deal and a 2% fee.
The very best cards in the whole market for 0% on new purchases right now are:
- Bank of Scotland and Halifax's Purchase MasterCards, with 15-month deals;
- More cards from Bank of Scotland and Halifax, and also from Sainsbury's, all with 12-month deals;
- The Citi Platinum MasterCard, with an 11-month deal;
- Barclaycard's Platinum Life of Balance Visa and its Flexi 10/10 cards (I wish B'card would come up with better names!), with a ten-month on purchases deal;
- The Capital One Bank Platinum MasterCard and SkyCard MasterCard with deals lasting roughly nine months (till August 2008).
Note: at present you don't pay a fee for making 0% purchases.
2. Use 0% cards with two deals of equal length
Alternatively, you can choose credit cards that have purchases and balance-transfer deals of equal length. You can find a selection here. The very top cards with equal length deals at present are:
- Several of Bank of Scotland and Halifax's cards, with 12-month deals and a 3% fee on transfers;
- The Barclaycard Flexi 10/10 with, you guessed it, ten-month deals, and a 2.5% transfer fee;
- A Virgin Money Credit Card and the MBNA Points Card, plus some more Halifax and Bank of Scotland cards, all with equal nine-month deals and 3% transfer fees.
- The Capital One Bank Platinum MasterCard with a deal lasting roughly nine months (till August 2008) and a transfer fee of just 1.7%;
- The SkyCard MasterCard with deals lasting roughly nine months (till August 2008) and a 3% transfer fee;
Obviously using one credit card is nice and convenient, but the downside to these cards is that the deals tend to be shorter.
3. Get credit cards with flat rates of interest
Switching between 0% credit cards saves most people a fortune in interest, but if you have had enough of this, you could get a credit card with a low rate of interest on both purchases and balance transfers. Make sure that the interest rate is the same on both. The top such cards at the moment are:
- The Barclaycard Simplicity Visa, with a typical 6.8% APR. There is no transfer fee if you transfer money in the first 60 days, but it's 2.5% thereafter. Also, the most that you'll be allowed to transfer is £5,000 or 90% of your credit limit, whichever is lower;
- The Egg Money MasterCard, with a typical 7.9% APR and no transfer fee;
- The Halifax and Intelligent Finance Flat Rate MasterCards, with typical rates of 8.9% APR and no fees;
- The Capital One Bank Platinum MasterCard, with a typical rate of 9.9% and a transfer fee of 1.7% (This also comes with a 0% deal on both purchases and balance transfers that lasts roughly nine months - till August 2008.)
- The Bank of Scotland and Halifax One MasterCards, with typical rates of 9.9% and a 3% balance-transfer fee. (This also comes with a 9-month 0% deal on both purchases and balance transfers.)
Sadly, these are all typical interest rates, so you might not receive them. Furthermore, the rates are all variable, which means that the lender could increase them at any time!
If you're going to pay interest anyway, you should consider getting a personal loan instead, most of which have fixed interest rates. Disciplined Fools should look for loans where you can overpay without penalty, and those who are less good with their money should look for loans with fixed payments.
> Compare credit cards through The Fool. Also, you can easily see whether you can overpay on a personal loan using our unsecured personal loan search.