Cheap plastic leads us into temptation

Enticed by credit cards trumpeting 0 per cent interest? Then use them to cut your debt, not increase it, says Melanie Bien

Demand from consumers for credit cards charging 0 per cent interest for several months shows no sign of diminishing.

Demand from consumers for credit cards charging 0 per cent interest for several months shows no sign of diminishing.

Sainsbury's Bank last week announced it is continuing its 0 per cent introductory rate, which runs for nine months, owing to customer demand. The supermarket bank had planned to withdraw the offer earlier in the week.

Barclaycard is the latest provider to offer a 0 per cent introductory period on balance transfers and new purchases, which runs until August 2005 - the longest on the market. The company has been inundated with applications following a high-profile ad campaign starring the Hollywood star Jennifer Aniston, and has only recently been able to clear the backlog.

"We had more applications than we thought we'd get," says a spokesman. "But we are now turning them around within two weeks."

While it is encouraging to find people shopping around for a cheap card, not all of them are doing so for virtuous reasons.

Many consumers see a 0 per cent offer as "free" cash that doesn't have to be repaid until a much later date. But if they don't put money aside to clear their credit card bill when the 0 per cent period comes to an end, they could find themselves in worse debt than before.

"I don't doubt that some people, who are quite extended already in terms of debt, will switch to a 0 per cent card and think they only have to cover the minimum payment," warns Stuart Glendinning, director of credit cards at moneysupermarket.com, a website that allows consumers to compare the cost of financial products. "They won't worry about the interest and will run up further debt."

Clever consumers use 0 per cent introductory offers to reduce their debts. Say a customer owes £1,000 on a credit card and has been paying £50 a month towards it; a large chunk of this would have gone towards paying the interest. But if the debt is transferred to Barclaycard and the customer continues to pay £50 a month, all of this will go towards settling the balance because no interest is incurred.

This will enable the customer to clear the balance more quickly. Even if they haven't managed to do so by the end of the offer period, by switching to another card offering 0 per cent they can continue to chip away at what they owe.

Those customers who clear their credit card balance at the end of each month can still benefit from 0 per cent interest on new purchases. Instead of paying off their balance in full as usual, they can put the equivalent amount into an instant-access savings account paying the highest rate of interest they can find.

At the end of the introductory period, they use these savings to pay off the balance on their credit card, so they don't incur any interest. Having earned interest on their savings, they will actually have made a profit.

However, for every person using their card sensibly there are bound to be others who won't. With debt set to top the £1 trillion mark in the next few days, according to the Bank of England, millions are overstretching themselves. Meanwhile, interest rates are on the way up, causing more problems.

Concern over spiralling debt is forcing the Government to seek changes to the Consumer Credit Act. It is calling for credit card statements to carry a warning that customers making only the minimum monthly payment will end up paying more interest. It also wants card providers to run a credit check on customers before extending their limit.

Consumers can protect themselves by noting when their 0 per cent offer ends and moving to another card offering a similar deal. Otherwise they'll pay the provider's standard annual percentage rate. This is at least 13.9 and 15.9 per cent for Barclaycard and Sainsbury's Bank customers respectively, depending on their credit rating.

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there