Are you paying painfully high interest on your overdraft? A money transfer credit card could cut your interest rate to zero.
Overdrafts on current accounts can be painfully expensive.
One way to get rid of your overdraft is to use a 0% money transfer credit card. These work by letting you transfer money from your credit card to your current account. Once you’ve transferred the money, you can use it to pay off your overdraft.
Credit card companies usually charge very high rates of interest on this sort of cash advance, higher than you would pay with most overdrafts.
However, these 0% money transfer credit cards allow you to transfer money from your card at 0% interest for an introductory period.
This is very similar to a 0% balance transfer. There are only two differences:
1. You’re transferring money from a card to a bank account, instead of transferring a debt from a card to another card.
2. The fee is often higher for a money transfer than for a balance transfer. Money transfer fees are usually around 4% whereas balance transfer fees are typically between 1.5 and 3%.
The top card
There are quite a few money transfer cards that are worth a look, but the best of all is the MBNA 31-Month Platinum Visa, which as the name suggests offers an interest-free period of two years and seven months.
It offers an eligibility check, which means you can see if you can get the card before applying without impacting your credit rating.
Once you take out the card you have 60 days to do a money transfer. So if you have a £2,000 overdraft, you could transfer that sum from your card to your current account and you wouldn’t have to pay any interest during the 0% period.
The biggest downside is that you’ll have to pay a 4% fee when you make the transfer. Remember it’s an upfront fee that you pay in one go. You’ll also have to make the minimum repayment on the card each month. If you’re late with a payment, the 0% deal can be terminated and you'll also get a black mark on your credit report.
The other crucial point is that if you haven’t paid off the resulting debt within the 0% period, you’ll then start paying interest at 18.9% on the card.
There are other cards to consider though.
Meanwhile the AA Balance Transfer Credit Card comes with a 28-month 0% period, also with a 4% transfer fee.
Like the MBNA 31-Month Platinum Visa the Fluid and the AA cards can give you an idea of how likely you are to be accepted before going through with a full application, which is good news for your credit record!
The rates on offer are significantly less than an overdraft at 19%, but again you’ll only be accepted at this rate if your credit score is good.
If your credit rating isn’t perfect, you may be offered a loan at a higher rate but if it’s below the amount attached to an overdraft then it is still worth going for.