Why a 0% credit card may not be the best deal for you

If you are looking to transfer an existing credit or store card debt onto a card charging a lower rate of interest, you'll probably focus on 0% deals. However, this may not actually be the best option for you.

Interest-free balance transfers offers are great if you'll be able to clear your debt during the 0% period. Once that ends, you'll be charged the standard annual percentage rate which will be significantly higher. For example, the Virgin Credit Card has a 16-month interest-free offer, which will be more than enough time for some people to clear their debt. But once that 0% period ends, you'll be charged interest at 16.6% on any balance that is still outstanding, so it won't be the most suitable card for everyone.

It used to be the case that you could easily move from one credit card to another, which meant that those who hadn't paid off their debt by the time the introductory offer ended could transfer what was left onto another 0% deal. However, this is no longer as straightforward as it used to be.

Peter Harrison, moneysupermarket.com's credit card expert, said: "It is extremely difficult to switch cards at the moment so you need to be savvy about tackling your existing debts. The best approach largely depends on your credit rating and how much you are able to repay every month.

"Whilst the credit card market has seen better days, there are still some great deals out there, albeit hard ones to obtain. People need to be aware that, even if they are accepted for a good product now, there is no guarantee this will be the case in a year's time. You therefore need to plan carefully to ensure your credit card debts are cleared in the most efficient way."

For some people, a card that offers a low long-term rate of interest could be a better alternative. MBNA's new Platinum Visa card, for example, offers a rate of 5.9% on balance transfers. This rate is fixed and it applies until the balance you transfer has been totally repaid.

So how can a low rate card be cheaper than one that is interest-free?

We have compared the new MBNA product to the Virgin deal. Both cards charge a balance transfer fee, MBNA charges 3% for the privilege, with Virgin charging 2.98% of the balance transferred. 
Based on a balance of £3,000, it would take someone making repayments of £50 per month seven years and two months, and they'd pay £1,195.05 in interest. However, if they made the same repayments to the MBNA card, even though the balance transfer fee is slightly higher and there is no interest-free period, it would take six years and two months to repay the debt and they'd pay £610.75 less in interest.
But it all depends on the amount you can afford to repay each month. If you can afford £150 a month, the Virgin card still beats the MBNA deal despite the fact you'll be charged interest at 16.6% after the first 16 months.

Don't forget spending

Making a balance transfer may be the primary reason you are looking for a new credit card, but what about spending?
The Virgin card isn't ideal if you want a credit card to spend on as well. Interest won't be charged on purchases for the first three months but you'll then pay the standard rate of 16.6% on any spending you've done. And because of the repayment system Virgin uses, your monthly payments will go towards paying off the interest-free balance transfer first.
There are two options that could work out cheaper for you. One is to go for a card that has the same interest-free period on both balance transfers and purchases. The Sainsbury's Credit Card for example, has a 10-month 0% offer on both, after which you'll be charged the standard rate of interest of 15.9%. You need to have a Nectar card to qualify for this deal though - for more information, read our product review.
Alternatively, the Halifax All In One card has a nine-month interest-free period on both spending and balance transfers. The standard rate of interest on this card is also 15.9%.
However, the other option if you want a credit card for purchases and to transfer a balance onto is a low rate deal. The MBNA Platinum card won't be suitable in this circumstance because the 5.9% rate applies only to balance transfers - you'll be charged 16.9% on purchases. But Barclaycard Platinum Simplicity could be ideal. It charges 6.8% on balance transfers and purchases, and there is no balance transfer fee.

Forewarned is fore armed

With it being harder now to get a new credit card, it's important to know whether or not you are likely to qualify for a product before you apply. It's well worth getting hold of a copy of your credit file as lenders will check this when assessing any credit application. Our new credit checking channel enables you to compare credit reference agencies.
If you know your credit score isn't perfect there are things you can do to improve it. For more information, read Felicity King-Evans' article 'Could you improve your credit score'.