But as tempting as these offers can be, you need to know how to make them work, and make sure that you take out the right card or you could inadvertently end up paying interest.
Moving your existing credit card debt to an 0% balance transfer card can save you hundreds of pounds in interest. Once you have moved your balance, you won’t have to pay any interest until the promotional period has ended.
You can find cards offering interest free transfers for up to 14 months, but if you want to combine this with interest free purchases, you’ll probably have to settle for a shorter interest free period.
You do have to make sure that you use your interest free time wisely though, and take care to clear your balance before you have to start paying interest on it.
What to look out for:
Balance transfer fees. Interest free debt isn’t free any more and you should expect to pay a fee of between two and three per cent of your total balance.
A 0% purchase credit cards lets you spend on you credit card, for the duration of the offer, without having to pay any interest on what you buy.
On most cards that offer both a balance transfer and interest free shopping, the purchases promotion will be shorter than the balance transfer, but you can find interest free shopping for as long as 12 months.
Look out for:
Short promotional periods that will leave you paying interest on your purchases until you have cleared your full credit card debt.
Tips on using both a balance transfer and interest free shopping
It is a good idea to pay of the full balance of your credit card before either one of the promotions expires, or you’ll end up paying interest on a chunk of your debt.
So if your zero per cent purchases offer lasts six months, and your balance transfer offer is for 12 months, you should aim to have your card cleared after the first six months, when the first offer ends.
If you can’t do this, you should only use one of the offers on your card - or you’ll minimise your benefits by incurring interest.
This is because of the way that credit card companies allocate your repayments. Any repayments you make will go against the “cheapest” debt - namely your balance transfer that is interest free for longer than your purchases.
So if you have transferred £1,000 for 12 months at zero per cent, then spent £500 at six months without interest, and repay that £500 at the end of the purchases period, it will actually go against your balance transfer.
You’ll then have £500 still interest free from the £1,000 you transferred, and will be paying the standard APR on your £500 purchases until you have cleared the remainder of your interest free balance transfer from your card.
The best thing to do is find a card that offers balance transfers and interest free purchases for the same length of time, though this might mean that you’ll have to settle for slightly shorter offers.
The current best buy transfer and purchases card is the Halifax One card (www.halifax.co.uk) that offers 12 months on both promotions.
You’ll have to pay a three per cent balance transfer fee and will be charged 15.9 per cent APR if you haven’t cleared your balance by the time the offers expire.
Case study
Usage:
Transfer £1,500 debt when you open the card
Spend £100 a month on the card
Savings:
£178 interest saved on the balance transfer (£223 interest - the £45 balance transfer fee) over 12 months
£97 interest saved on purchases over 12 months
£275 saved in total
Health warning
Don’t use these offers as an excuse to go crazy and spend more than you can afford to pay back. Only use your card for the things that you would buy anyway, making sure that you have paid off your debt before the promotions end. Otherwise the interest you have to pay will soon exceed anything you gained from these offers.
A good idea is to put the money you would have used to pay off your card each month into a high interest savings account for the duration of the zero per cent promotions.
This way you can earn interest on this money, and have it handy to clear your debt before you have to start paying interest.
