Crafty customers can enjoy an interest-free spending spree lasting up to a year. Here's how to play your cards right.
Last week, in Put Your Debts On Ice, we showed you how to take advantage of 0% balance transfers to freeze the interest on your credit- and store-card debts. For example, by transferring a balance of £3,000 to the Best Buy Virgin Money MasterCard, you could save upwards of £500 over fifteen months, even after paying a fee of 2.98% of the transfer amount.
This week, it's the turn of 0% on purchases credit cards. Let's assume that you don't have any existing credit-card debts (well done!), so balance transfers aren't much use to you. Nevertheless, by paying for goods and services with a 0% card, you can benefit from an extended interest-free period.
If you're one of those sensible spenders who always pays off their credit-card balance in full every month, then you'll know that most cards provide an interest-free period of between 45 to 59 days. In other words, if you time a transaction so that it hits your credit-card account just after a monthly statement is produced, then you can enjoy interest-free credit on this transaction for 14 to 28 days after your next monthly statement is produced.
However, swapping your existing bog-standard credit card for a 0% on purchases card brings two immediate benefits. First, you don't have to pay off your entire balance in full each month in order to avoid paying interest. Indeed, even if you pay only the minimum monthly repayment (MMR), you still don't pay a penny in interest. Second, instead of an interest-free period lasting at most 59 days, you can dodge interest on your spending for a whole year.
Let me give you a practical example. Suppose you buy a new kitchen costing, say, £5,000, using an ordinary credit card. In order to avoid paying interest on this hefty purchase, you'd have to repay this £5,000 within 59 days. On the other hand, by paying with a Best Buy 0% on purchases card, you can pay the required MMRs yet enjoy interest-free credit for a full twelve months. Here's a list of the Best Buys in this category, courtesy of Fool.co.uk's independent, unbiased credit-card search engine:
Best Buy 0% on purchases credit cards
Card | Interest-free | Typical |
|---|---|---|
12 months | 15.9 | |
Bank of Scotland One 12 Month Offer MasterCard | 12 months | 15.9 to 19.9 |
HSBC Bank MasterCard | 12 months | 15.9 |
11 months | 16.9 | |
10 months | 14.9 | |
10 months | 14.9 |
Finally, before you rush off to grab one of these Best Buys, please read the following warnings:
1. Of course, you should never misuse these credit cards by overspending on them, so be sure not to spend more than you can comfortably afford to repay over the course of a year.
2. Be sure to repay your entire debt before your 0% deal expires. Otherwise, you'll start paying interest at upwards of 14.9% APR, which ruins the fun.
3. By paying only minimum monthly repayments and putting aside what's needed to pay off the remaining balance just before your 0% deal ends, you can earn high rates of interest on this spare cash in a Best Buy savings account.
4. Use these credit cards only for purchases. In other words, avoid transferring balances to them and don't use them to withdraw cash or make 'cash-like transactions' (such as online gambling, buying foreign currency, and so on). Otherwise, you'll ruin the game by paying sky-high rates of interest on these additional transactions until your entire bill is repaid in full. Oops!
That's it from me. Here's to avoiding interest until summer 2008!
More: Compare 0% on purchases credit cards | Get Paid To Spend! | Why Cash And Credit Cards Don't Mix!