Are you paying painfully high interest on your overdraft? A top money transfer credit card could cut your interest rate to zero.
Overdrafts on current accounts can be painfully expensive.
One way to get out of the red 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, 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 longest 0% deal
The longest-lasting 0% deals on the market right now come from the Virgin 36 Month Balance Transfer MasterCard and the MBNA Platinum Balance Transfer Visa.
Both cards offer 36 months of 0% interest on money transfers.
So if you have a £2,000 overdraft, you could transfer that sum from the Virgin or MBNA card to your current account to freeze the size of the debt for 36 months.
The main downside is that you’ll have to pay a fee of 2.99% with the MBNA card or 4% with the Virgin card when you make a money transfer. On a £2,000 debt that amounts to £59.80 or £80. The fee has to be paid upfront all 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%.
There are other cards to consider here though.
Virgin offers a range of cards which you can use for money transfers.
Or there’s the All Round Credit Card which offers a 24-month 0% period on money transfers, with a much more affordable 1.9% fee.
There’s also the Fluid Balance Transfer Visa, which offers a 24-month 0% period of money transfers, with a 3.99% fee.
And don’t forget the various charity credit cards provided by MBNA (including the WWF, National Trust and British Heart Foundation) which also offer a 24-month 0% money transfer period, with a 4% fee.
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.
This article is regularly updated to reflect the best deals