Thrifty Living: Free money is on offer, but you could pay later

Fancy some money for nothing? It's still possible – but more of that later.

If you leaf through the accounts of credit-card providers, they're littered with phrases like "cautious approach to lending" and "proactively tightening credit availability". What this means is that easy credit at good terms is increasingly restricted to those with good credit standing. The lenders' decision-making process on whether to lend, and how much, is now largely governed by credit scoring, affordability, behavioural scoring and indebtedness rules.

"Pricing for risk" or "personal pricing" is also coming into play in unsecured lending as, if a credit card is offered, higher interest rates may be applied to those whose credit status is not considered prime. Look at the credit-card section of Halifax's website; it's very informative on this issue.

For those who can get the best deals, the credit cards available are very competitive for new customers: 68 per cent of cards offer a 0 per cent introductory rate on balance transfers; 60 per cent offer 0 per cent deals on introductory purchases; and 56 per cent of them offer 0 per cent on both transfers and purchases. Such offers are one way credit cards attract new customers.

The introductory balance transfer deals are not as straightforward as they used to be, as most now charge a fee of 2.9 to 3 per cent of the amount transferred. But even this deal is difficult to beat.

And the free money? That's at Northern Bank, which is alone in offering 0 per cent on balance transfers (for five months) with no fee. The average 0 per cent balance transfer introductory deal lasts for 9.6 months.

HSBC, Virgin and Abbey all offer 15 months on balance transfers but charge 2.9-3 per cent fees. For 0 per cent deals on purchases, FirstDirect's Gold Visa offer lasts 12 months. Sainsbury's card offers the same period, but the 0 per cent is only valid on shopping at Sainsbury's – the deal is for only three months for spending elsewhere. M&S offers 0 per cent on purchases for 10 months.

The credit-card companies hope you will carry on using the card even after the introductory period. They also hope you'll use the card for all your credit-card needs.

But there is one golden rule in 0 per cent balance transfers. Do not use that card for anything else because, with most cards, your monthly repayments will be set against the least expensive debt first; any spending on which interest is levied will not start to be cleared until much later. Follow this rule even if your card offers 0 per cent on both purchases and transfers. Get two cards: use one purely for the balance transfer, the other for ongoing purchases.

If you have outstanding balances, try to repay more than the minimum repayment; if you don't, the debt will last a long time. For example, if you spent £1,000 and were charged interest at 1.313 per cent per month and made the minimum monthly repayment of 2 per cent (minimum £5) it would take you 23 years and eight months to clear the debt. At £50 a month, the balance will be repaid in two years.

If you're confident you will be able to repay the outstanding capital at the end of your 0 per cent deal, then repaying the minimum each month may be advantageous.

The writer is principal consultant of banking at Defaqto