Can you use a 0% card for spending

If you’ve ever seen adverts for 0% credit cards you might wonder what all the fuss is about. After all, they are just another method of borrowing money that if not used carefully, can land you in debt. You may even be wondering why you shouldn’t just save up for the item you want rather than borrow to have it now?

Unfortunately, if your car has just died or your boiler needs replacing, you may not have the luxury of waiting. 

This is where a 0% card for purchases can help. Not only are they one of the cheapest ways to borrow money, they can save you hundreds in interest charges on existing debts. Putting a large purchase (such as a boiler) on a 0% card will give you some all-important breathing space – extra time that can make paying for it more manageable.

Let’s take a closer look at the three main types of 0% card:

0% Credit Card: For purchases

All credit cards offer around 56 days from making a purchase, during which time no interest is charged. This is known as the interest-free period. Fail to pay the debt off in full after this time, however, and you will be charged interest on the borrowing at your lender’s standard rate.

But a 0% credit card for purchases will charge zero interest on anything bought on the card for an introductory period (typically between six months and two years). 

So, if you bought a £4,000 car on a 0% card for purchases (assuming your credit limit allowed it) you could potentially have up to two years before needing to pay off the bulk of the money. 

Compared to taking out a personal loan, using a 0% card in this scenario could save hundreds of pounds in interest. 

But there are a few things to be aware of:

• It’s important to understand that whilst 0% cards give an introductory period during which you are charged no interest, you must make the minimum repayment to the card company each month. Miss just one payment (or pay late) and you will not only be charged a fee, but your 0% period will be declared void, meaning you will now be paying interest on the whole balance at the lender’s standard rate. It’s best to set up a direct debit so that the minimum payment is taken automatically so that you do not forget.

• It is also vital to ensure you have the money at the end of the introductory period to repay your debt in full, or you risk being charged interest. Either pay off chunks of the balance every month, or transfer the money spent on the card to a savings account. If you do the latter, when the 0% deal ends you will have the money ready and will hopefully have earned some interest, too.

• Withdrawing cash on a credit card will still cost you money regardless of the 0% deal. It will also leave a mark on your credit record – so avoid this at all costs.

0% Credit Card: For balance transfers

If you currently owe money on a credit card that you are paying off (and paying interest on) a 0% card for balance transfers could be a good choice. 

You may be charged a small fee for transferring the balance to the 0% card, but you no longer pay interest on what you owe, giving you time to pay off your debt rather than the interest on it. What’s more, if you owe money on more than one credit card, you could use a 0% card to consolidate the debt, leaving you with one balance to be repaid.

The best cards currently offer 0% balance transfer periods of up to 29 months – giving cardholders up to 2.5 years to pay off their borrowings. What’s more, some cards even offer the best of both worlds – 0% on both balance transfers and purchases.

But remember:

While moving expensive credit card debt to a 0% card is clearly a sensible idea, you do need to be disciplined to benefit from doing so.

• Unless your new credit card offers 0% interest on balance transfers and purchases, avoid using the card for purchases.  The rate charged on the new spending is likely to be very expensive and could negate the savings made.

• Ensure you pay at least the minimum repayment each month – or you will forfeit your 0% deal.

• You cannot transfer a credit card balance to another card in the same banking group – so bear this in mind when searching

• Moving your debt to a 0% card will save you money but that debt must still be repaid. One simple method to manage this is to divide the balance by the number of 0% months you have (for example, £3,000 with a 15-month 0% period would be £200 a month). Now, set up a standing order to pay that £200 into a savings account each month for 15 months. Then, when the 0% period ends, you will have the money ready to pay off the balance.

• Never withdraw cash on your credit card

0% card for Money Transfers

Our third type of 0% card is designed for those paying off an expensive loan or bank overdraft.

Instead of transferring a credit card balance to a 0% card, the credit card company pays the borrowed sum as cash directly into your bank account (or to the provider holding your bank loan). This pays off your debt, in return for a one-off fee.

Your borrowing will now be with the credit card company, which will charge 0% interest on it for the introductory period (typically up to 18 months). After this, you must pay off the credit card balance in full or risk paying the lender’s standard interest rate.

Be careful around fees, however, as money transfer cards typically charge 4% of the amount transferred. While that’s a small sum compared to a typical overdraft interest charge, it’s larger than some personal loans – so make sure you check that a 0% money transfer card is your best option.

On the whole, 0% cards for money transfers are a great way to clear expensive borrowings that need to be paid off in cash.

But be aware:

• While taking out a 0% card to help you clear an expensive overdraft can save you a lot of money in interest, the debt must still be repaid. You can either pay off large portions each month, or work out a savings plan to ensure that you have the money ready to clear your credit card balance when the 0% period ends.

• You must ensure you make the minimum repayment to the card company each month or risk losing your 0% deal

• If your credit card provider pays a large sum of cash directly into your bank account to clear a debt, it can feel like a windfall. If you are worried about inadvertently spending the money, ask the credit card provider if it can pay off your borrowings directly. If the money is to clear an overdraft, speak to your bank so that they can adjust your overdraft facility as soon as the money is in your account.

• Never withdraw cash on a credit card.

By choosing the right 0% card you can spread the cost of new purchases, transfer existing debt from a more expensive card, or pay off other borrowings. And as long as you stick to a few rules and pay off what you owe before the introductory offer is up, you shouldn’t pay any interest at all. Used wisely, they can be a great financial tool.

Bad credit history

Of course, lenders don’t offer free credit to everyone. 0% cards are typically only offered to those with a good credit history. If you have missed payments or had problems managing your finances in the past, this is likely to show up when your lender does a credit check – and could result in you being turned down for this type of card. It may be worth checking whether you're likely to be approved before applying by using an eligibility checker.

Allocation of payments – what is paid first?

When you realise that you could have a card with a transferred balance, new purchases and even cash withdrawals on it, all being charged at different interest rates, you may wonder how the lender decides which debt is paid off first?

Thankfully, the rules say lenders have to clear the debt with the highest interest first. So, if you had a 0% balance transfer deal in place but had made some purchases (charged at 17.9%) any payments made should go towards the purchases first. 

If you had also happened to have made a cash withdrawal (charged at 21.9%) the payment should be allocated to the cash withdrawal, then the purchases, with any left-over money used against the balance transfer.

What’s more, it is possible to take out a 0% deal for both purchases and balance transfers – but with different durations for each offer – which can make things very complicated.

Check the credit card terms and conditions for the rates for “purchases,” “balance transfer” and “cash advances” and the order in which they are paid off carefully. 

Alternatively, you may decide that the simplest thing to do with a 0% balance transfer card is to put it in a drawer so that you can’t use it by accident and risk being charged interest. 

Credit limits

Another thing to be careful of when using a 0% card for purchases is not breaching your credit limit. 

Not only is this likely to incur an automatic fee of around £12, but it can also damage your credit score, which can cause issues when you come to apply for credit in the future. Keep an eye on your spending on the card and keep it well below your limit.

Other charges

Some lenders claw back some of their money by charging an annual fee – so check the details of each 0% card carefully.

Withdrawing money and using a credit card abroad can also rack up expensive charges. 

Ensure you read and understand the charges that apply to the card you’re interested in and if you are likely to travel a lot, pick a card with no foreign transaction fees.

Extra benefits

It’s worth mentioning that as well as saving money, you can gain other benefits from making purchases with a 0% card. Pay for goods costing between £100 and £30,000 on a credit card and you are covered by Section 75 of the Consumer Credit Act, for instance. This makes the credit card company and the retailer jointly liable if things go wrong. And many cards offer reward or loyalty points that can be traded in for air miles or other treats.

Is a 0% card right for you?

0% cards are clearly a fantastic option if you would like to spread the cost of an expensive purchase – but they must be used with care to avoid getting into debt. 

If you think you can trust yourself to pay off what you owe before the introductory period expires, and you have a good credit record, a 0% card for purchases could be a good choice.

How do I choose the best 0% card for spending?

If you decide a 0% card for purchases will suit your needs, take some time to compare the cards on the market. While the longest introductory period may be the most appealing, check for annual fees and other costs or benefits. Do your maths and be sure that you can pay off your new spending before the 0% period expires to avoid paying any interest.

Help for anyone struggling with debt

On a final note, if you’ve had problems controlling your spending in the past or are struggling to pay off what you owe, it may be best to steer clear of any new forms of credit (including 0% cards) to avoid the possibility of adding to your debt. 

Instead, seek help from organisations such as Stepchange who can provide invaluable advice to help you become debt free.