Published: 23/10/2008

The papers and TV seem to have gone into gloom overload during the last few weeks; however don't get too despondent as there are still some good news stories out there.

For example, anyone who's looking to switch their expensive credit card or store card borrowing can now get a jaw dropping 16 months interest free with the Virgin Money credit card That means no interest to pay until February 2010, so if you haven't bothered to switch in the past, now's the time to give it some serious thought.

 

Whilst you'll need to have a good credit rating to be considered for this and other 0% deals on the market, don't dismiss them out of hand, because there is some serious money to be saved.

To illustrate this point, if you've got a balance of £1,500 on your credit card and paying a fairly standard 16.9% APR interest rate, you will save £289.58 if you switch to interest free for 16 months. On the other hand you may have a store card balance of £600 costing you an eye watering 27.9% APR in which case you could cut your interest bill by £172.34 if you take up this table topping balance transfer deal.

Under the terms of the Virgin credit card offer you will have to pay a one off balance transfer fee of 2.98%, however the interest you save as highlighted in the above examples will more than make up for this. However if you can clear your credit card debt in six months or less then take a look at the Zero card from Abbey which is interest free for 6 months but comes without a balance transfer fee.

 

Resist the temptation to use your balance transfer card for spending

Different types of credit card transaction are often charged at different rates of interest. For example while you might only be charged 0% for balance transfers, any spending is likely to be charged at a much higher interest rate and cash withdrawals even higher still. And because credit card providers automatically apply your monthly repayments to the lowest rate debts first, you end up paying interest on the most expensive borrowing on your credit card.

The knock on effect is that your expensive spending related card debt is effectively trapped, rapidly piling up the interest costs, and you can't repay this borrowing until you've cleared all your cheap debt. This sneaky ploy known as the 'negative hierarchy of payments' is a great money-spinner for card providers and explains why many cards with cheap balance transfer deals come packaged with tempting reward points or cash back offers in an effort to try to get you to spend on them.

So make sure you don't get caught out and take some proactive steps to ensure that you never spend on your balance transfer card. The best way to do this is to use a separate card for your shopping and general spending and leave the balance transfer card locked away at home in a drawer or cupboard out of harms way.