15:54 01 November 2012
With most credit cards charging representative APRs of around 18%, using them to borrow long-term is always a bad idea.
Instead, you should look to switch any lingering debt on to a card charging as little as 0% on balance transfers.
The good news is that Royal Bank of Scotland (RBS) and NatWest (both part of the same banking group) have this week laid down the gauntlet to rival Barclaycard, challenging its market-leading balance transfer card with a new 0% deal lasting 23 months.
That is the same length as the interest-free offer on the Barclaycard Platinum Credit Card with Extended Balance Transfer and allows successful applicants to avoid interest for almost two years.
The new RBS and NatWest cards also offer six months interest free on purchases, beating Barclaycard's three months at 0%.
As with most attention-grabbing offers, however, there is a catch. Anyone shifting debts onto the Barclaycard will pay a fee of at least 2.8% of the balance to be transferred, while those moving to the new RBS/NatWest card will pay a heftier fee of 3.5%.
If you needed to transfer £2,000, you would therefore pay £56 upfront with Barclaycard, or £70 with RBS/NatWest.
As with any balance transfer deal, interest charges kick in once the initial deal comes to an end if you haven't managed to clear your balance (in these instances, after 23 months).
The APR for Barclaycard, RBS and NatWest once the 0% balance transfer period is over is 17.9% (variable).
So is it worth paying a high fee to take out the longest balance transfer deals, or would you be better off with a shorter 0% deal or a low-rate card with no balance transfer fee?
We take a look at the alternative deals available so that you can choose the best card for your needs.
Are there credit cards offering 0% for a lower upfront charge?
While the cards described above offer the longest interest-free balance transfer deals on the market, that does not necessarily mean they are the best option in every case.
After all, if you can clear your debts in less than 23 months, why pay for the privilege of access to such a long 0% offer?
If you think you can pay off your balance within 22 months, for example, you could cut the fee you pay at the point of transfer to 2.6% by opting for the Barclaycard Platinum Credit Card with Balance Transfer.
And if you think you can clear your debts within 16 months, there is also the Barclaycard Platinum Balance Transfer Card with Low Fee.
It charges 1.5% of the debt to be switched across.
Alternatively, there are also the new RBS and NatWest cards that offer 13 months at 0% with a balance transfer fee of just 1%.
But beware: the cards have variable representative APRs of 17.9% (Barclaycard Platinum Credit Card with Balance Transfer), 18.9% (Barclaycard Platinum Balance Transfer Card with Low Fee) and 17.9% (RBS and NatWest).
It is therefore in your interests to clear the debt in full before these high rates kick in.
Are there any 0% cards with no balance transfer fees?
All the 0% balance transfer deals on the market at the moment come with an upfront charge of some kind.
However, there are some great low-rate cards that can slash the interest you pay on your debts without forcing you to pay a balance transfer fee.
The Sainsbury's Low Rate Credit Card, for example, is a good choice for anyone looking for a card charging a low rate of interest over the long term.
It has a representative APR of just 6.9% (variable) that applies to both balance transfers and purchases.
There are no balance transfer fees. However, you may be offered a higher representative APR of either 9.9% (variable) or 12.9% (variable) if your credit file is less than perfect.
Similar cards include the Barclaycard Platinum Simplicity, which charges a representative APR of 7.9% (variable) on both balance transfers and purchases, with no balance transfer fee.
Once again, it will suit those keen to avoid transferring their balances - and incurring fees - again and again to take advantage of 0% introductory offers.
Other advantages with this deal are that cardholders can manage their accounts online and make contactless payments for purchases up to £20.
To qualify, you cannot already have a credit card with Barclaycard and you must have a regular income of more than £20,000 a year.
So which is cheapest overall?
Whether or not it is worth paying a balance transfer fee to access a long-term interest-free deal will depend on the amount you owe and how long you are likely to need to pay it off.
Let's say you owe £1,000 and need three years to clear the debt.
With the Sainsbury's Low Rate Credit Card mentioned above, your total interest would be £45.06, meaning you would pay £29.02 per month for 36 months.
With the market-leading Barclaycard Platinum Credit Card with Extended Balance Transfer, you would pay interest of £32.09 (incurred after the 23-month 0% deal) plus a balance transfer fee of £28.
That's a total of £60.09, or £15.03 more than you would pay with the Sainsbury's card.
Taking three years to pay off debts of £2,000 or £5,000 would also cost less on the low-rate card, with savings of £26.08 available to those owing £2,000 and £75.15 to those with debts of £5,000.
Pay your debts off within the 23-month interest-free period offered by the Barclaycard card, though, and you could save £17.06 in interest on £1,000, £32.58 on £2,000 and £85.32 on £5,000.
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