Clearing up some common myths about credit cards

CREDIT cards are both the best and worst way to borrow. Do it right and it’s a way to get a loan at no cost at all, get it wrong and it can put you in debt hell. One of the key weapons in the savvy consumer’s arsenal is a balance transfer, which allows you to cut existing debt costs. So today, I want to show you the best current deals and clear up some common myths.

In a nutshell, a balance transfer card repays debts on other cards for you, so you owe it instead, but at a cheaper rate. As more of your repayments clear the debt, you pay less interest and are debt-free sooner.

Currently the longest 0% balance transfer deal on the market is Barclaycard, offering 27 months (18.9% APR after) for a one-off fee of 3.5% of the amount transferred. Though Natwest/RBS offers only a month less (18.9% APR after) with a fee of just 2.5%, which for some will work out cheaper.

If you can repay far quicker than that, Halifax – while only 15 months 0% – has just a 1% transfer fee (17.9% APR after), so is worth considering.

For daily updated options, including longer term deals, go to mse.me/bts.

Three golden rules to remember

It isn’t just about getting the right card, it’s about doing it the right way. There are three simple rules you always need to follow:

1 With a 0% card, either clear the debt or shift it again before the 0% ends – or you will pay the full APR meaning interest costs soon mount up.

2 Always pay at least the specified minimum repayment on time each month (preferably more) or you risk losing the special rate.

3 Don’t spend or withdraw cash on these, it isn’t usually at the cheap rate.

So those are the basics, but what is a rather simple concept tends to throw up a huge number of questions. Here are the most common I receive:

How do they decide if they’ll accept me?

Cards score your application based on how closely you meet their wish list of what a profitable customer is. So if you’ve had past credit problems, it’s tough.

Frustratingly, the only way to find out for sure is to apply. But that puts a mark on your credit file (whether you’re accepted or not).

To find your likely odds of acceptance for different cards, use my Eligibility Checker tool at mse.me/bts

How many can I apply for?

There’s no set limit on the number of cards you can apply for, but lots of applications in a short space of time can cause problems. If you’re credit card tarting (shifting from 0% to 0% when one ends), this shouldn’t be too big an issue, as then applications should be spread out.

Will my payments remain the same if I shift to a new card?

You can repay what you like on a credit card as long as it meets the set monthly minimum.

So the only time your repayments may change is if a card has a different minimum.

While they’re all roughly similar, there can be differences so shifting cards can mean higher monthly payments. If that’s an issue, check before applying (it’ll be in the summary box).

Though remember only paying the minimum means it’ll take an age to repay, so try to repay more if you can.

Can I shift debt to a new card with the same issuer?

A card issuer may accept your application for another card, but most won’t allow you to switch debts between their cards. This applies to brands managed by the same firm, such as MBNA and Virgin.

My new balance transfer card’s credit limit is too low, what can I do?

You can ask for an increase, but that’s rarely allowed. Yet shift the maximum debt you can anyway -the application hits your file, so you may as well use it. See if you can get another cheap card for the rest.

If I spend on a 0% balance transfer but pay it off, do I pay interest?

Spending’s usually at the standard interest rate of 15-20%, even on a 0% balance transfer card.

The only way to avoid this is to clear the entire debt off the card in full at the end of the month. If you repay all your spending but leave balance transfer debt, you still pay interest.

Get a different card to spend on – preferably one with either 0% on spending if you need to borrow, or cashback if you don’t.

Should I cancel unused old cards?

Access to excess credit, even if unused, can make lenders wary. Cancelling could boost your creditworthiness, but there’s no hard and fast rule.

Before cancelling, if you’ve debts elsewhere, check whether the card will give you an existing customer balance transfer offer. This can happen (ie, it lets you shift debt to it at a cheap rate even though you’re not a new cardholder).

A few, especially Barclaycard, will try to persuade you not to cancel with £50 cash.

Can I balance transfer onto someone else’s card? For example, can a woman with a good credit score agree to shift debts from her partner who has a dodgy credit record?

Lenders I’ve checked with confirm you can.

Though, if you do, remember the debt legally becomes yours. There’s no going back.

Do you pay interest on the transfer fee?

This varies per provider, but either way it’s usually paid off after your first monthly payment, so the amount’s small.

Can I transfer an overdraft balance/loan to a 0% card?

A money transfer lets you balance transfer cash into your bank account. You can then use it to repay the loan, so you owe the card instead.

Be very careful, as most 0% cards don’t allow this at 0% and cost a fortune. For top picks of those that do, see mse.me/money transfers.

Tesco’s double exchange is back

UNTIL July, you can swap £5 worth of vouchers for £10 to spend in-store or online in selected depts, including toys, clothes, opticians, cameras, sat nav, baby and much more. First check if you can reclaim old vouchers or get up to four times their value on rewards. See mse.me/tesco

Free sat nav app for 30 countries

IF you’ve a smartphone with GPS (eg, an iPhone or Samsung Galaxy), Navfree’s a nifty way to convert it to a decent functional sat nav abroad. Most importantly, download the maps before you go, so you won’t need to use pricey 3G data while you’re there. Get it at navmii.com/navfree