If you put your Christmas spending on credit then you could save some serious money by moving the balance onto an interest-free deal now.
If you spent £2,000 on a credit card with an APR of 18%, then in order to clear your balance in one-year you would have to pay back at least £190 per month. By the time you'd fully re-paid the loan, your original £2,000 would have increased to £2,193.
However, by moving your balance onto a credit card with 0% interest on balance transfers for at least 12 months, you could pay off the £2,000 without attracting a single penny in interest and only face monthly payments of £166.
Unfortunately, the credit crunch means 0% balance transfer deals are harder to come by, with most credit card companies only accepting people with good credit histories. Before you think about applying for a new credit card, it is worthwhile checking your credit record and making sure all the information companies see about you is correct and up-to-date.
Whatever you do, don't keep applying for credit cards if you are turned down by one provider; multiple applications for credit within a short space of time could have a negative impact on your credit record and might be held against you in the future. Find out more about checking your credit record.
Three 0% deal catches to watch out for
There are a few things to take into consideration when opting for a balance transfer card. Firstly, be aware that you will have to pay a fee to transfer money from an existing credit card. This is normally around the 3% mark, but some providers have a minimum amount - for example, Barclaycard's OnePulse 0% balance transfer deal has a fee of 2.9%, but this must be at least £7.25.
Secondly, not all 0% balance transfer credit cards are interest-free for purchases as well. If you do intend to use your plastic for further shopping, then make sure you opt for a card that offers 0% on balance transfers and purchases. The time periods of these two 0% deals might differ, so make sure you don't keep spending on your card once the 0% offer has expired.
Thirdly, watch out for negative payment hierarchy. This means your payments will be used to pay off the balances attracting the lowest
interest rate first. Therefore, if your 0% purchase deal has expired but you still aren't attracting any interest on your balance transfer, then your payments will be used to pay off the transferred balance rather than new spending.
The crux of this, is that you will end up paying more in interest as your purchase debt (possibly attracting interest of around 18% APR) will not reduce until the balance transfer is paid off.
The top 0% balance transfer deals tend to all have negative payment hierarchy, so it might be worth having two credit cards, one for balance transfers and one for new purchases.
Remember, if you do go for a 0% balance transfer deal then work out exactly what you need to pay each month, so you completely clear the debt before interest kicks in. While this may sound obvious, it is all too easy to become apathetic about credit card debt until it is too late.
To reduce the risk of being stuck with a balance to clear at the end of the 0% period, it is worth setting up a standing order and taking the payment into account as part of your monthly budget.
Three top 0% balance transfer credit cards
Virgin Money's MasterCard
* Good if you want a long period to pay off the balance
* Good if you want to make new purchases without attracting interest
* Good if you want incentives
* Bad if you want to avoid negative payment hierarchy
Virgin Money's MasterCard offers 0% interest on balance transfers for the first 16 months from the date of issue, as long as these are made within the first 60 days. Although there is no annual fee, a balance transfer fee of 2.98% (minimum £3) applies.
The card also offers 0% on all new purchases for the first six months from the date of issue. After this time, you will get 50 days to pay off your balance before an of APR 16.6% applies.
Virgin offers customers other incentives with this card, such as discounts on Virgin products and services. These include money off Virgin trains, holidays, mobiles and wine.
However, bear in mind that Virgin applies negative payment hierarchy. This means that once the 0% period of purchases has expired, your payments will be used to pay off the balances transfer debt first.
Barclaycard OnePulse
* Good if you live in London
* Good if you want a lower APR once your 0% balance transfer period has ended
* Good if you want to make payments without entering your pin
* Bad if you want to make new purchases
* Bad if you want to avoid negative payment hierarchy
Barclaycard OnePulse offers 0% on balance transfers for 14 months, after which time its APR becomes 14.9%. The balance transfer is 2.9% (minimum £7.25).
Another benefit of this card is that customers can use it to travel around London as it includes a built-in Oyster card. Plus, OnePulse offers a cashless feature meaning you can pay for items under £10 without having to put in your pin number.
Barclaycard also offers its OnePulse card as a six-month 0% purchase deal or as a cashback card, with 5% returned to you on Transport for London spend.
If you opt for the 0% balance transfer deal, then bear in mind purchases will attract interest of 14.9% APR although you do get 56 days to pay off new balances before interest kicks in.
If you do make purchases and don't pay off these off within 56 days, then Barclaycard will apply negative payment hierarchy and will allocate payments to meet your 0% balance transfer debt first.
You should also be very careful about using this card for cash withdrawals; apart from the fact that this type of transaction will attract interest of 27.9% APR, your payments will be used to meet your balance transfer debt and your purchase balance before your cash withdrawal balance is touched, so you could end up racking up a lot of interest very quickly.
HSBC MasterCard
* Good if you want to make new purchases
* Bad if you don't have an HSBC account
* Bad if you want to avoid negative payment hierarchy
HSBC offers 0% for 15 months on balance transfers as long as these are made within 30 days after you take out a card. A 2.9% balance transfer fee applies, minimum £5.
This card also offers 0% of purchases for the first three months after which time a 16.9% APR variable kicks in. You do, however, have 56 days in which to meet your new purchase balance before interest applies.
This card is only available for new HSBC credit card customers who already have an account with the bank, excluding student current accounts.
As with most top 0% credit cards, HSBC uses negative payment hierarchy therefore your payments will be used to meet your balance transfer first, then purchases and lastly cash advances.
