Save thousands with a 0% credit card

Used correctly, a 0% card could save you thousands of pounds of credit card interest!

Of course, the greater the balance transferred, the more interest you'll save - find out how much you could save with this calculator. And on a slightly different note, if you don't have any credit card debt, but happen to have a large overdraft you can use a number of 0% balance transfer cards (including the Virgin card) to help you clear that debt, too.

Warning

But before you leap to apply for a balance transfer credit card, take a moment to consider a few key points.

Credit cards are really only advisable for those who pay off their balances in full, each month. And while a balance transfer credit card may seem great, those who take one out should be confident that they will save diligently during the 0% period. Fail to do this and you could end up with a whopping bill that you have no way of repaying (and you won't be surprised to hear that this is what card providers live in the hope of, charging shocking rates of interest as soon as they possibly can).

You should also cut up the card as soon as it arrives, to ensure you don't spend on it. Not only to prevent you from getting further into debt, but also because most cards operate negative payment hierarchy, so any new spending you do on the card ends up costing you heaps in interest. This is the case even if the card offers a 0% on purchases period - read Don't fall for this card trick to find out more.

Having said all that, as long as you use it properly, a 0% balance transfer card will knock years off the time it takes you to repay your debt - and can save you thousands of pounds in interest over your lifetime.

Aren't credit cards are wonderful things - that tiny piece of plastic allows us to make purchases all over the world so easily. But they've got to be used properly. Let debt on the card build and the interest you'll rack up is horrendous.

35 years to repay £2k!

Let's say, for example, my imaginary friend Sam uses her NatWest credit card (which charges the typical credit card interest rate of 16.9%APR) to pay for the £2,000 holiday she booked with her boyfriend. If she were to only make the minimum payment (2%) each month it'll take her... wait for it ... 420 months to pay back. Yep, that's over 35 years. Blimey!

What's more, she'd be paying back an incredible £4,080 in interest - that's more than twice what she borrowed in the first place!

Why use a credit card?

You may well be asking why on earth Sam would put a debt like this on a credit card - shouldn't she save up first? Yes. Of course. Waiting until she had stashed enough cash away would definitely have been the most sensible solution.

They're not all bad...

But sometimes we can't wait. And using a credit card can be a very sensible thing to do - for a start, Sam benefitted from Section 75 of the Consumer Credit Act (which means should the travel company go bust, she'd be able to claim compensation for her holiday with the credit card company, as both parties share liability).

Can we avoid the interest?

What's more, if Sam timed her purchase for just after her statement date, she'd benefit from 56 days (that's nearly 2 months) of interest free credit. So if she cleared her balance within this time there would be no interest to pay at all.

But what if she didn't have enough to pay for the flight upfront, and just stuck it on her card as the easiest option - not realising how much it would cost her over the years?

Sounds familiar? If you're in a similar situation to Sam, don't keep paying the minimum payments, enabling your credit card provider to make a fortune off you. Consider transferring your debt to a 0% balance transfer credit card instead.

0% balance transfer cards

These cool tools are credit cards without the nasty interest. You transfer the balance from your existing card to the 0% card (usually with a 3% fee) and, depending upon the provider you get up to 16 months to pay it off, during which time you'll be charged no interest at all.

How much could you save?

Say Sam transferred her £2k balance from her NatWest card to the Virgin credit card (which currently offers the longest 0% balance transfer deal on the market - a whopping 16 months). Although she would be charged a £59.60 fee, she'd have over a year to repay the balance, in which time she'd pay no interest whatsoever.

So if she could squirrel £125 away each month in a top regular savings account, in 16 month's time she'd have enough to pay off the card when the 0% deal finished, and she should even have earned a bit of interest in her savings account, to boot. Cool.

And if she didn't transfer her balance?

If Sam were to leave her balance on the NatWest card, and paid a similar sum off her card each month (£125) it would take 19 months to pay back - three months longer than with the Virgin card. This means the last three month's of payments (a whopping £375 extra) is effectively just interest. Eek!

Of course, things aren't quite as cut and dried as they may seem, as some of that £375 would be offset by the £59.60 balance transfer fee. But even after taking this into account, Sam would still be saving over £315 by moving her balance to the Virgin card, which is still a very respectable saving!

More ways to save

Of course, the greater the balance transferred, the more interest you'll save - find out how much you could save with this calculator. And on a slightly different note, if you don't have any credit card debt but happen to have an overdraft you can use a number of 0% balance transfer cards (including the Virgin card) to help you clear that debt, too.

Warning

But before you leap to apply for a balance transfer credit card, take a moment to consider a few key points.

Finally, it is a good idea to cut up the card as soon as you arrive. That way, you won't be tempted to spend on it. Don't be tempted because the card offes 0% on purchases for a few month, as these deals are not as good as they seem - you are likely to be caught out by a nasty trick called negative payment hierarchy.

But if you're sure you'll be able to clear your balance before paying any interest, or you have credit card debt that you are desperate to repay, consider a 0% BT card. Used carefully, they can be a great tool to help you get back on the straight and narrow.

More: New top 0% card for purchases | Justice for credit card borrowers