Credit Cards – Interest Free or Balance Transfer?

There are many financial products on the market that can help you manage your money; from stocks and shares ISAs to savings accounts and much more, there is a wide variety of choice available. Credit cards are a really popular financial tool that millions of people use on a regular basis. There are lots of different types of credit card available, and it can be useful to decide which one you want to apply for based on which type would benefit you the most.

Two of the most popular types of credit card are interest free credit cards and 0% balance transfer credit cards. This article looks at what both of these types of credit card are, as well as some things you could consider when you are trying to decide which would be more beneficial for you.

What they are – interest free

Interest free credit cards essentially act as their name suggests. If you apply for one of these cards and are accepted onto it, you will be given an interest free period. This is a time when you can make purchases on your card and then pay them back over an extended period without having to pay any interest on them. As long as you have paid off the balance of your card before the interest free period runs out, this makes interest free credit cards a useful financial tool to have as they can help you to plan and manage large purchases.

This is in contrast to some other credit cards, where if you do not pay off your full balance every month, anything left unpaid starts to accrue interest. This can then make it take longer to pay off the money you owe as the interest pushes the cost of it up. How much interest you pay depends on your APR (annual percentage rate). However, it is worth noting that credit card companies are now obliged to use the money you pay to pay off items with higher rates of interest first; the aim of this is to limit the amount of interest you pay in the long run.

Interest free credit cards can be good if:
•    You want to spread out payments over a period of time
•    You are thinking of making a significant purchase that will take a few months to pay off
•    You are looking for a cheap credit card option (just remember that the interest free period is time-limited)

What they are – balance transfer

0% balance transfer cards are credit cards that allow you to transfer over the balance of your old cards without accruing the normal charges for doing so. This means that if you do want to transfer over a balance, the only charge you will normally have to pay is the handling fee (this might vary depending on the specific card you have, so it is definitely worth checking to clarify how much this is).

Essentially, 0% balance transfer credit cards allow you to pay off the balance on previous credit cards, which means you can consolidate what you owe onto one card. You can then typically pay off your transferred balance without accruing interest on it (as long as you are able to pay it off in a set period).

0% balance transfer cards can be good if:
•    You want to consolidate what you owe
•    You want to transfer a balance without the normal charges

Things to consider

When you are deciding whether an interest free credit card or a 0% balance transfer card would be better for you, there are a few things you should take into consideration.

One thing to consider is the APR on offer. This is the rate that tells you how much interest you’ll be charged and it’s important to look at this, even if you are taking out an interest free credit card. Something else to consider is your own financial situation: many people find that there is a particular type of card that would suit their needs at a specific time, so you could use this to help your decision.

You could also think about whether you would be planning to pay off your balance in full every month or whether you would want to spread out the payments. If you are going to pay in full every month then if you took out an interest free credit card, for example, you would not be able to reap its full rewards.

Other things to think about include added benefits, such as the possibility for contactless payments, online card management and other rewards associated with a particular card (such as air miles, cash back, points or discounts).

Photo: Peter Kratochvil