Free Credit

Christmas is coming and the shop tills are running hot, as consumers go on an annual spending spree. It’s even more important than normal, to know how to budget or make the most of your spending.

So how about the so called 0% credit cards – how can you use them and what are the best ones to apply for?

Interest free credit cards otherwise known as 0% cards give you a limited time in which you pay no interest rate on the money you have borrowed. That is a big deal, especially if you are suddenly spending a lot, such as at Christmas.

But remember you always have to pay the piper and eventually the interest-free period will end and you not only have to pay the money back, at some point interest will start being charged. But the interest-free period can still be a great offer, as long as it is not enticing you into unmanageable debts.

Q: What are the best ways of managing a 0% card?

A: Although no interest is charged, you still need to make repayments each month.

If you don't, you may lose your 0% deal and get a penalty charge as well. It may also count as a bad mark on your credit report.

Also try to see if you can clear the balance (the amount on your credit card statement) by the end of the 0% period. That's important because after that time, you will start paying large amounts of interest on the outstanding bill. Carrying long-term debt on your credit card is not usually the cheapest way to borrow money. If you need longer term financial help - it may be cheaper to get a personal loan rather than borrow money on your card.

It is also often a problem if you withdraw cash on the credit card. Even though they don't charge interest on goods and services bought via the card, a cash withdrawal will usually incur interest rate charges.

Q: Can I move the debt from one credit card on which I'm paying a big interest rate to one which doesn't charge any interest rate?

A: It's a neat trick if you can do it. Some cards will allow these so called 'balance transfers'. However there may be an initial on-off charge and some won't allow it at all. So make sure you check the details.

Q: What are the best 0% cards out there?

A: Offers change all the time and getting the card will depend on your credit history. But here are some offers which might be worth considering:

Barclaycard has a 0% card which offers up to 22 months 0% credit. After that they charge 24.9% rep APR

HSBC has a 0% card which offer up to 20 months 0% credit. After that they charge 24.9% rep APR. They also offer £25 cashback if you spend at least £100 within the first 60 days of having the card.

M&S has a 0% card which offers 20 months at 0%. You also earn M&S points on spending.

Q: Do you have to have a good credit rating to get a 0% card?

A: Usually you do need a good rating but some cards are available to those with lower credit ratings, they include:

Virgin Money has a 0% card for 12 months

The Post Office has a 0% card for 3 months

Q: Are credit cards better than loans?

A: With an interest-free credit card, you don't have to commit to anything higher than the minimum repayment each month. It's also a form of 'revolving credit', so what you pay back you can spend again.

Especially if you are using the 0% interest-free period, the credit card looks appealing. But after the 0% period ends, you are likely to pay around 25% interest a year. Getting a personal loan could be very significantly cheaper, maybe 1/3 of the cost.

You might also find it easier to get a card than a loan.

But here is the really important thing to keep in mind. Borrowing money on a credit card is an eye-wateringly expensive thing to do. A credit card charge you 25% interest, the best personal loans charge around just 7%. Some loans around at those sort of rates are currently available from Santander, Tesco Bank and M&S bank.