Created by: John Fitzsimons | 28 June 2019

Why things have got worse for credit card borrowers

If you have a big purchase on the way, then a credit card that offers interest-free spending can be a godsend.

These cards some with a set 0% period on the money you spend, meaning you can pay your balance off in manageable monthly chunks. Each and every penny you repay will go towards reducing your debt, rather than a portion of your repayments having to go on interest charges.

Overall it’s a quicker and cheaper way to repay your balance than spending a large amount on a normal credit card and then taking your time clearing the debt.

Shrinking 0% deals

However, there is some bad news if you’re in the market for one of these 0% cards, as the interest-free periods on offer is shrinking.

According to a new study from financial information site Moneyfacts, the average interest-free term on purchase cards has dropped from 356 days a year ago to 335 days.

It’s not just the reduction of the average 0% deals either, but the top cards are less attractive today than they were. For example, the longest 0% period on offer is the 28 months card from MBNA, yet back in January you could get 30 months from Santander. Back in March 2018 the longest 0% deal on offer was 31 months.

The number of interest-free deals on the market is falling too according to Moneyfacts, from 102 in March 2017 to 88 last March, all the way down to 75 today.

In other words, not only do borrowers have less enticing 0% cards to pick from, there are fewer 0% cards available across the board.

That’s not exactly a promising situation if you have a wedding on the way or need to purchase a new kitchen and planned to do so using a 0% purchase card.

What about a balance transfer card?

One alternative option that’s worth considering is a balance transfer credit card. You do your big spending on your normal card, but then transfer over the balance onto this new card, which offers a set period of 0% interest on transferred balances.

It used to be the case that the 0% deals on offer from balance transfer cards were significantly longer than those from purchase cards, but that difference has been trimmed of late.

Today the longest 0% balance transfer offer is 29 months, just one month more than with a top purchase card.

What’s more, with a balance transfer card there will be a transfer fee to take into account. This is calculated as a percentage of the balance you’re shifting over. So if you’re moving over £2,000 and there’s a 1% fee, that’s a further £20 you’ll need to pay.

Making the most of a 0% deal

It’s worth remembering that the best 0% deals, whether purchase or balance transfer, are only really for people with excellent credit histories. Therefore it pays to do your research and check your own rating before applying. If there are some simple fixes which would boost your score, such as signing onto the electoral roll, then be sure to act swiftly.

No matter whether you get the top 0% deal on the market or a less competitive one, it’s really important that you make sure you pay off at least the minimum payment each and every month. A missed payment may be grounds for the card provider to withdraw the 0% promotion entirely.

It’s also a good idea to calculate how much you’re going to need to repay each month in order to clear the balance entirely before the 0% period concludes. Otherwise you will start paying interest on the remaining balance.

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