If you have amassed an elephant-sized chunk of credit that you are finding difficult to pay off, then it may well be in your interest to ‘freeze’ your debt. You could do so by transferring your credit card balance onto a card with 0% interest. Or if you're in the red, why not find a current account with an interest-free overdraft?
Click here to read about 0% overdrafts
0% Balance Transfers - Get rid of that interest!
Getting a credit card which has 0% interest on balance transfers is one of the quickest and easiest ways to reduce your outgoings and pay off your debt swiftly.
There are many cards which will charge no interest on balance transfers for over a year. So switching to such a card is a good way to effectively isolate your debt and pay it off within the time limit, without accruing any more interest. The advantage of this is that you can pay off the capital, rather than repayments being swallowed up by interest.
For example, a maxed card with a £1,500 limit and 17.9% interest will accrue £268.50 over the course of 12 months. Which is considerably more expensive than no interest! Suddenly a 0% balance transfer seems like a very good idea!
Click here to compare credit cards
It is however crucial to bear in mind that, once you have your shiny new 0% balance transfer card, DON’T spend on it! Furthermore, don’t then instantly max out the card you’ve just transferred from. This would defeat the object of having transferred in the first place, which is to zap your debt.
You could also freeze your debt by putting your credit card in a container of water in the freezer. That way, if you think you need to use it, you will have the time it takes to thaw to consider whether or not you really need to make that purchase – a literal cooling off period!
The real cost of 0%
Credit card companies know that people often transfer their balance between several 0% cards, and usually charge an initial fee for the transfer. Check the size of the fee before transferring; but you may find that this is more reasonable than the interest that would otherwise be amassed on credit card debt if not paid off.
At present, one of the most competitive balance transfers is offered by Natwest. Their card has 0% on balance transfers for 13 months, with a transfer fee of 2.5%. The typical APR (variable) on this card is 13.9%.
To compare all our 0% balance transfer credit cards, click here.
Top tips for keeping your card on the rails
- Avoid paying back only the minimum amount on your credit card. If one pays 2.5% of the debt each month, while amassing interest at 17.9%, it can take over 16 years to pay back an original debt of £1,000… And you will have paid £1,082 in interest alone. Yikes!
- Avoid getting into more debt by telling your issuer that you do not want your credit limit increased without express permission. It is all too easy to max out cards if the funds are available; and letters from your issuer ‘congratulating’ you on having qualified for another chunk of debt with interest payable on top do not help. If your issuer decides to up your limit without consulting you first, put your foot down!
- It is always vital to think of your credit card limit in terms of a debt, not a resource.
Click here to compare credit cards
Are you in the red? Get yourself a 0% overdraft
If you’re regularly in the red on your current account, then paying further interest on your overdraft is hardly going to do your finances any good. So how is this to be remedied? Well, you could switch to an account with 0% interest charged on your overdraft.
Switching current accounts is probably easier than you think. Your new bank will deal with most of the complicated stuff, so you don't have to. They can even close your old account for you. Although, if you are concerned about any glitches which may occur whilst swapping current accounts, then for peace of mind it might be an idea to keep your old account open for a month or so, until you are satisfied that all of your direct debits and so on are going out of the right account!
Several banks are at present offering a 0% rate of interest on their overdraft facilities. This is usually for a limited period – but paying no interest on an overdraft for, say, twelve months is not to be sniffed at. This gives you a bit of time to try and clear that overdraft, without paying any extra for it.
At the time of writing, Alliance & Leicester and Coventry are offering 0% interest periods on overdrafts. Alliance & Leicester’s Premier Direct online account and Premier branch-based account each offer this facility for 12 months; although the former offers a more beneficial rate of interest for those in credit (6.5% AER as opposed to 1.5% AER).
To compare current accounts with Confused.com, click here
