| Credit Cards: How to make the most of the offers
Consumers can now get nine months' interest free credit following Halifax's announcement that new credit card customers will receive a longer introductory period. The bank has increased its 0% deal, when no interest is charged on purchases or balance transfers, from five months to nine.
A number of card providers now offer interest free deals, including Capital One, Morgan Stanley, Royal Bank of Scotland, Citibank, Egg, Sainsbury's, Tesco and Halifax. This is great news for consumers as it can save hundreds of pounds in interest payments. For example, if you had a balance of £2,000 on a NatWest Standard card, which has an annual percentage rate (APR) of 17.4%, and only paid of the minimum amount each month, you would pay £295 in interest over nine months. That would obviously be zero if you had a Halifax card.
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However, some experts are concerned that the increasing availability of interest free credit is encouraging people to take on more and more debt and is one of the main contributing factor to the rising level of consumer debt. The British Banker's Association estimates that the average household in the UK owes £7,000 on credit cards and personal loans.
Consumers can benefit greatly from credit cards that offer an interest free period as they can help spread the cost of a holiday or Christmas presents, or even be used to transfer over an existing debt so that you repay just the capital and accrue no interest. However, you need to be aware that when the O% deal comes to an end the rate will rise significantly as you move to the standard APR. For example, the Halifax Classic card has an APR of 16.9%. Most cards levy a standard rate of between 13.9% and 16.9%. Therefore an interest free period is not an excuse to make the minimum payments only - you should be aiming to have the balance cleared once the introductory offer ends.
Keeping track of how long you have got left at the lower rate will become easier. From January credit card issuers will inform customers when their introductory period is about to finish.
If you still have money outstanding and are unable to clear it in full, rather than pay the higher APR, look to take out another card with a low rate and transfer the balance over. You could opt for another 0% deal, but unless you are very disciplined, the temptation to spend more may get too great so rather than clearing your debt it may increase. This is why some people believe these credit card deals have played a part in the escalating level of consumer debt.
An alternative is to take out a card with a low balance transfer rate. Capital One's No Hassle Platinum card, for example, only charges 4.9% for balance transfers and that rate lasts for as long as it takes you to clear your debt. Or you could take out a personal loan. The advantage of a loan is that your repayments are structured so you will know how much you need to repay each month in order to clear your debt within a certain time. If you had a balance of £2,000 on a credit card you could take out a loan from Northern Rock at 6.3%. In order to repay the loan in a year, your monthly payments would be £172.25.
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