Borrowers fight back in the battle of the cheap cards

There may be fewer interest-free credit cards deals, but the banks can't kill them off, says James Daley

SBC became the latest in a long line of lenders to launch a 0 per cent credit card this week, seducing customers with six months interest free on all balance transfers and purchases, as well as the promise of no additional fees.

SBC became the latest in a long line of lenders to launch a 0 per cent credit card this week, seducing customers with six months interest free on all balance transfers and purchases, as well as the promise of no additional fees.

But while 0 per cent deals are still relatively easy to get your hands on, the very best offers have been quickly disappearing over the past six months. Twelve or even 15-month interest-free offers are a thing of the past, while several of the best nine month offers now come with a one-off fee on balance transfers, as lenders try and recoup some of their losses after a period of intense market competition.

Many more providers have withdrawn cards which offer 0 per cent on both balance transfers and purchases, while others have scrapped add-on extras such as free insurance.

Although HSBC's latest deal stretches to both transfers and purchases - and comes with the promise of no additional fees - it only lasts for six months, much less than borrowers were readily offered a year ago.

The quickly changing shape of the industry has led several pundits to warn of the end of the 0 per cent era. Stuart Glendinning, a director of www.moneysupermarket.com, the price comparison website, says that although 0 per cent deals may not be facing extinction yet, lenders have had to tighten their belts after the credit giveaway of the past few years.

As well as reining in their deals, credit card lenders have also been tightening their criteria over the last few months, after seeing a sharp rise in the number of bad debts, Glendinning adds. Royal Bank of Scotland became the latest of the big four UK banks to announce a rise in consumers defaulting on their loans this week, echoing the comments made by HSBC and Barclays last month.

Ian Barber of Barclaycard admits that the 0 per cent deals of a year ago were always going to be unsustainable. However, he says Barclaycard has not had any problem drumming up new business since introducing a 2 per cent fee (up to a maximum of £50) on its balance transfers.

Glendinning says that around 50 per cent of the credit-card market is accounted for by people looking for 0 per cent balance transfers or interest free purchase deals - the so-called "rate tarts". However, he adds that the majority of the rest of the market are people who pay off their balances relatively promptly, and are in search of rewards and bonuses for the use of their card.

Cash back offers, loyalty card points and air miles are all available for those who prefer perks over zero per cent rates - and although many of the traditional add-on extras have disappeared, there are still providers that compete solely for this market.

American Express and Morgan Stanley both offer 2 per cent cash back on their credit cards for the first few months after a customer signs up, while Ryanair offers the odd free flight to those who sign up to their package.

Although 0 per cent deals are unlikely to disappear altogether, if you're in the market for one, then you're unlikely to see any improvement on the current set of offers. More likely, the choice will narrow and the interest free periods will continue to reduce.

Glendinning points out that the credit card industry will find it almost impossible to get rid of 0 per cent offers altogether. "The genie's out of the bottle, and once it's out you can't put it back in."

But given that the shrewdest "rate tarts" - who spend their time switching their debt from one 0 per cent offer to the next - are costing the industry an estimated £80m a year, providers are doing all they can to contain the monster they created.

'I was robbing Peter to pay Paul's plastic bill'

Bill Carr, a 46-year old publican from Rainworth near Mansfield, decided to consolidate his debts from a handful of high interest credit cards, on to a Virgin card last year.

With a few hundred pounds across five different cards, Mr Carr said the interest was mounting up. "It's only a few hundred pounds across a few different cards, but it got to the point where I was robbing Peter to pay Paul, to pay the interest on all of them. So I moved them all on to Virgin, which was interest free for the first six months - and I figured I'd have it all paid off by then anyway."

Mr Carr now tries to manage his debt online. "I often work into the night, so it is handy to go online at any time."