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.
Research from Moneyfacts reveals that the monthly cost of borrowing fees, based on the average authorised overdraft charging a usage fee, has hit an all-time high of £6.88. That's three times as much as the amount charged back in 2009. Even without interest charges, that adds up to £82.56 over the course of a year.
Those who dip into their unauthorised overdraft are hit by the highest fees of all, averaging at £57.50 a month. That's a stonking £690 per year.
How to destroy your overdraft debt
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% deals
Right now there are two deals which allow you to freeze the size of your overdraft debt for more than three years.
First up there’s the Tesco Bank Balance Transfer Credit Card, which gives you a colossal 40 months of 0% interest on money transfers as well as on balance transfers.
Money transfers on the card attract a 3.94% fee, which means if you have a £2,000 overdraft debt to clear you’ll have to pay £78.80. If you haven’t paid off the resulting debt within the 0% period, you’ll then start paying interest at 18.9%.
This is a time-limited offer so make sure you take advantage of it before July 7 2016.
You also have the choice of the Virgin 39-Month Balance Transfer Card, which also offers an impressive 39 months of 0% interest on money transfers as well as on balance transfers.
This card charges a slightly higher 4% fee on money transfers, so if you have a £2,000 overdraft you will need to hand over £80. If you haven’t paid off the resulting debt within the 0% period, you’ll have to start paying interest at 20.9%.
There are a number of other cards to consider here though.
The Tesco Bank Clubcard Credit Card for Balance Transfers offers 38 months of 0% interest on money transfers for a 3.94% fee.
And don’t forget the various charity credit cards provided by MBNA (including the WWF and National Trust) 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
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