Credit cards can prove a great help should an unexpected expense arise which you can’t immediately pay for.
The problem is that, once you get into debt, it can be extremely difficult to get back out again thanks to the sky-high interest rates charged on credit cards (some have APRs that are as much as 12% above the base rate).
If you have debt that is racking up interest, it’s imperative that you shift it immediately to a 0% balance transfer credit card.
Savings can be significant
There are loads of such cards on the market, offering up to 15 months interest free. The catch is you will have to pay a charge, also known as an admin fee, of up to 3% on most of these cards.
While this is annoying, it’s small change compared to the savings you’ll make through avoiding interest.
Consider the following example: You have £2,500 debt on a card with a 17% APR. In the first scenario, you simply leave the money there and pay it off in a year, costing you a total of £2,736.
In the second scenario, you switch to a balance transfer card that charges no interest for 12 months, but comes with a 3% fee (£75). Again you pay it off in a year, but this time your total costs come to just £2,575 – a saving of £161.
Choose the right card for your situation
If you want to eke the maximum benefit out of your balance transfer credit card, you should choose the one that is best suited to your financial situation, or more specifically; the way you plan to pay off your debt.
If you only have a small amount of debt to transfer, or will be able to pay it off in a matter of months, then you should choose a card that offers a short interest free period but charges no admin fee. The best card for this is currently* the Abbey Zero credit card (0% for six months, no fee).
If you need a bit longer to pay off your debt, say 12-15 months, you should go for the longest 0% deal on the market, regardless of the fee. At the moment* this is the Virgin Credit Card, which offers 15 months interest free and charges a 2.98% fee.
Finally, if you have a fairly sizeable debt that will take a few years to clear and you can’t be bothered switching between the various 0% deals on the market, you should choose a card that charges a low rate of interest for the life of a balance. Your best bet here is currently* the Capital One Low rate balance transfer credit card, which charges 5.5% interest on transfers for life.
*Information correct as at the time of publishing (17/07/2008)
