Baffled by 0% interest deals?

woman shopping online with her smartphone, paying with her credit card

0% interest credit card deals. They sound tempting, don’t they? But the reality is, if you’re not completely on top of your finances, you can get caught out by incredibly high interest rates further down the line. To give you a clearer picture of the pros and cons of 0% interest credit card deals, here’s a quick run through of how to make the most of these offers without getting caught out.

These promotional deals can be an interest-free way to pay off your debt or spread the cost of large purchases. For instance, if you’ve got a two year 0% interest deal, you could (for a fee) balance transfer existing debt onto the card knowing that it won’t build up any more for at least two years if you don’t make any purchases. If you then work out how much you need to repay each month to pay off your debt before the two years are up, you can clear it without paying any interest.

Why people get caught out by 0% interest offers

If you’re not disciplined with your money, you could end up paying high interest rates on your debt once the 0% interest offer ends. This is because once the promotional period is over, you’re usually charged the credit card’s standard interest rate on your entire remaining balance.

What’s more, 0% interest deals can often be confusing. While some credit cards have long promotional periods for balance transfers, they may have shorter windows where you can receive 0% interest on spending. Confusion over the length of these promotions can lead to customers unknowingly racking up debt. Missed repayments can also mean losing your 0% interest offer entirely, resulting in large amounts being charged high interest rates.

Finally, with long promotional offers, it can become incredibly easy to forget to transfer your debt onto a new promotional credit card before your offer comes to an end. Providers don’t always remind their customers when time is running out on their promotion, leaving many to slip into receiving the standard APR.

How to avoid the getting caught out

If you think 0% interest cards are right for you, there are a few things you can do to help avoid a debt spiral.

  • Be disciplined – if you’re using your card to clear debt or pay for a purchase, work out how much you need to repay each month and stick to it.
  • Set up a direct debt – ensure you don’t miss a payment by setting up a direct debit to repay the amount due each month.
  • Avoid spending on your card – if you’ve take advantage of a balance transfer promotion, don’t allow your debt to increase by spending on your 0% interest credit card.
  • Set reminders for when your promotional offer ends – give yourself advance warning of when your deal is coming to an end so you can arrange an alternative finance solution if you’ve not paid off your debt.

Breaking the debt cycle

Even if you do manage to successfully bounce your debt around promotional credit cards, you won’t necessarily be taking any positive steps towards clearing your debt.

Recent changes by the Financial Conduct Authority (FCA) also mean that credit card customers who don’t pay more than the minimum monthly repayment on their credit cards for more than 36 months risk having their accounts closed. This could make actively trying to clear debt essential for those reliant on credit for monthly spending.

Please note: there has been an update to the recent FCA changes and they will now be implemented later in the year. 

If you’re not convinced you can stay disciplined or you’re already stuck in a debt cycle, you may want to look at refinancing to take control of your finances. If eligible, a debt consolidation loan would enable you to pay off any expensive credit card debts, giving you a more manageable debt repayment plan. If you’ve recently defaulted to a standard APR, you may find you’re eligible for a lower APR through a loan, reducing your monthly repayments.

If you are thinking of consolidating existing borrowing you should be aware that you may be extending the term of the debt and increasing the total amount you repay.

However you choose to finance your spending, make sure you do your research to work out which method is right for you. If you’re worried about money, you can get free, impartial debt advice from the Money Advice Service.

Think a debt consolidation loan could help you take control of your finances? Check your eligibility now without affecting your credit score.