How to save money on credit card interest

One way to do just that is by switching to a low rate credit card.

The money educational charity ‘Credit Action’ states that the average British household is currently £8,833 in the red. Please not this figure does not include mortgage payments. There is no evidence available to indicate that these figures will be reduced in the foreseeable future, so it is only logical to assume that they will continue to rise. If, as is generally suspected, these debts are sitting in credit and store card accounts, then it could cost as much as £4,000 to clear that amount of debt over 5years.

One way to avoid this extra cost is to transfer over to a 0% balance transfer credit card. There are several to choose from, but one of the best offers around at this moment in time is the Virgin credit card. They are offering the longest 0% period of time-a staggering 13months before resorting to their normal rate. Yes, there will be a transfer fee of 2-3%, however this does not detract from the bigger overall saving you will make in the long run.

Sometimes customers are put off the 0% offers because, on the whole they do tend to run for short periods of time and people neither have the time nor the inclination to shop around for a better deal a few months down the line. In this case an alternative way to cut costs could be to look at a low cost credit card, rather than an actual 0%.

Look at the table below to get an idea of the potential savings out there.

Card Type	typical debt amount	APR	interest paid in 5 years
Egg	£8833	16.9%	£4,310
Barclays Simplicity	£8833	6.8%	£1,611
Halifax One	£8833	0% (1st 12 months, then 9.9%)	£1,451

As you can see, there are incredible savings to be had, however if you just took the time and effort to move to another 0% deal at the end of your current one you could eliminate ALL interest payments until the debt is paid off.

Another big trap is the store cards, with their exorbitant interest rates. These are often well hidden behind an array of tempting offers to lure you, but is a ‘free’ gift or discount really worth paying up to 30% interest rates in some cases after that initial welcome offer?

Despite this, store cards are increasingly popular, and as a result our debt increases accordingly. Consumer debt service Clear Start said we owed £3.15billion on store cards alone in 2004. Remember you can clear your store card debt by paying with a 0% credit card to save on interest payments.

At this time of year our thoughts often turn to holidays and/or home improvement projects. For many, the first thing to do to fund these will be to take out a loan. Why not look at 0% credit cards for this too? Compare the interest rates in the table below and think which option might suit you best.

Lender/Credit provider	Amount borrowed	Interest rate	Total repaid (over 3years)
Lloyds TSB loan	£5,000	11.4%	£5,879
Sainsbury’s bank loan	£5,000	7.9%	£5,609
GE Money loan	£5,000	6.3%	£5,486
Interest-free credit cards	£5,000	0%	£5,148 (*)

(*) the £148 will be paid in transfer fees

Credit cards have to be handled very carefully. In the wrong hands they can cause no end of financial misery and problems, but used carefully and wisely, they can help improve our financial positions making life more enjoyable and stress free for those concerned.