Use this credit card to slash your debts!

If you feel like you've got a never-ending amount of debt to pay off, this credit card has the answer...

Here at lovemoney.com, we're regularly banging on about 0% balance transfer credit cards. And why? Well, because these nifty pieces of plastic are a great way of helping you combat credit card debt.

Let's say you have a pile of debt on a credit card with an interest rate of 16.9%. Instead of putting up with paying this high rate of interest, you can shift that debt across to a 0% balance transfer credit card and pay no interest on that debt for a year or more.

Sounds like a pretty great solution, right? And it is - providing you're prepared to pay a transfer fee of around 3%.

But unfortunately, there's just one more snag...

The dilemma

Let's say you've shifted your credit card debt onto the Virgin Credit Card which offers a market-leading interest-free period of 16 months. Now, there's no denying that this is a good deal - 16 months gives you plenty of breathing space and time to tackle your debt head on, without worrying about paying interest.

But what happens once those 16 months are up? If you've managed to completely clear your debt - great. But if you haven't, you'll find yourself stuck with an interest rate of 16.6%, which, believe me, is going to be a bit of a shock to the system.

So the best way to avoid paying this interest rate is to transfer your debt to yet another 0% balance transfer credit card.

However, this means you'll need to remember exactly when to switch and apply for a new card, so it's going to involve a bit of organisation. And if your debt is pretty significant, you might find that once the second deal has run out, you have to move your debt yet again onto a third card - which, let's face it, is going to become a bit of a hassle. What's more, you're going to have to pay a transfer fee of around 3% of your balance every time you move your debt. On a £1000 debt, that's £90.

In other words, rate tarting - as this practice is known - can become fairly expensive.

Another way

Fortunately, there is another solution. And that's all thanks to lifetime balance transfer credit cards.

With these clever credit cards, you pay a very low rate of interest - typically around a third of what you'd pay on a normal credit card. So if that interest rate stays low, you'll pay much less interest than you would normally, and you won't need to worry about constantly switching your debts about.

Right now, the market-leading lifetime balance transfer card is the MBNA Platinum Low Rate Visa. This offers a very low, variable interest rate of 6.7% APR. And best of all, providing you transfer a balance within the first 60 days of your account opening date, you won't have to pay a transfer fee!

What's more, the MBNA Platinum Low Rate Visa allows you to carry out money transfers. So this means you can transfer money from your credit card straight into your current account. You can then use this money to help pay off an expensive overdraft, for example, and you'll only be charged an interest rate of 6.7%! Again, providing you carry out the transfer within the first 60 days, you won't have to pay a transfer fee.

What's the catch?

As with everything in life, there are a couple of drawbacks to the MBNA Platinum Low Rate Visa.

Firstly, the interest rate on the card is variable - so there's no guarantee it won't change at some point.

Secondly, if you already have a credit card that's been issued by MBNA, such as the Virgin Credit Card, you won't be able to transfer a balance from that card to the MBNA Platinum Low Rate Visa. If you're unsure which companies issue which cards, you can find a comprehensive list in The secret truth about your credit card.

Interesting facts

Drawbacks aside, just how much money can you save by transferring a debt onto the MBNA Platinum Low Rate Visa, compared to leaving that debt on your average credit card?

Well, let's say you transferred £5,000 of debt onto the MBNA Platinum Low Rate Visa and paid off £100 a month. In total, it would take you 59 months (or just under five years) to pay off the debt in full, and would cost you £847 in interest.

In comparison, if the £5,000 of debt was on a credit card charging an interest rate of 16.9%, and you were paying off £100 a month, it would take you six years and 10 months to repay the debt. And you'd pay out a whopping £3,174 in interest!

So this means that by using the MBNA Platinum Low Rate Visa, you'll pay off the debt nearly two years earlier, and save yourself £2,327.17 in interest!

What about a 0% card?

How about if you transferred that £5,000 debt to the 0% Virgin Credit Card, and paid off £100 a month? Taking the 2.98% fee into account, once the 16 month period had come to an end, you'd have £3,549 left on your credit card. If you left this balance on the card, rather than transferring the balance, you'd start paying an interest rate of 16.6%.

If you carried on paying £100 a month, it would take you another four years to clear the debt, costing you £1,224 in interest. So this would mean you'd pay £377 less in interest with the MBNA Platinum Low Rate Visa, even though the rate on the Virgin Card was initially lower.

What's more, looking at the total amount repayable for each card, the cost of the total debt is £526.01 more with Virgin, given the longer term to repay the debt and the higher rate payable after the introductory 0% period has ended.

That said, you'd be around £183 better off with the Virgin Card if you manage to clear your debt in the first 16 months.

But if you're not prepared to pay off your debts in full within the next 16 month and you don't want to keep switching cards and moving your balances, then you're best off transferring your balance to the MBNA Platinum Low Rate Visa.

Try to overpay

Don't forget that the more you pay towards your credit card debt each month, the faster you will pay it off. So in the very first example, if you doubled your payments to £200 a month, you'd pay off the debt on the MBNA card in just over two years - and only pay £387.33 in interest. So you'd save even more!

Finally, if you are interested in the MBNA Platinum Low Rate Visa, make sure you apply for it immediately - don't wait until the New Year. That's because this offer only applies to the first 1,000 customers who are approved for the card.

Compare credit cards at lovemoney.com

Get help from lovemoney.com

If you need help paying off your credit card debts, lovemoney.com can help.

First, adopt this goal: Pay off credit card debts.

Next, watch this video: The cost of credit card debt.

Finally, why not have a wander over to Q&A and ask other lovemoney.com members for advice?

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