Paying interest on a credit card can take a big chunk out of your monthly earnings, so if you can avoid paying interest by using an interest free credit card, you should do so. There are now a variety of different credit card deals which can help you last longer without paying interest, you just need to know how to navigate the interest free credit card marketplace.

It is vital to read the small print and find out exactly what you are agreeing to when you sign on the dotted line for an interest free credit card. Do your research and plan ahead - otherwise, you could end up paying far more than you expected in interest repayments.

Read on to discover how interest free credit cards work and what traps you should avoid.

There are two main types of interest free credit card:

0% on purchases credit cards – this means you will not pay interest on purchases you make until the promotion finishes. This option is best for people who are clear of current debt. So, if you don’t have any debt, a 0% on purchases credit is a good way to make purchases without paying interest, as long as you are absolutely certain you will be able to pay off the balance before the 0% on purchases promotion ends.

0% balance transfer credit cards – allow you to allocate interest bearing debt from one credit card to a 0% balance transfer credit card. This means you can concentrate on paying off the debt, rather than paying interest. You will not pay interest on your balance for a specified period of time – usually around 6-12 months. This is the best option if you want to save on interest repayments for current debt but are capable of paying off that debt quickly.

If you would rather pay off the debt over a longer period of time, another option you should research is the lifetime balance transfer credit card – these offer a long-term alternative for those carrying a larger debt, offering a low rate of interest for a longer period of time. However, if you already have debt which you know you will be able to pay off fairly soon, a 0% balance transfer credit card could be for you.

Tips for 0% balance transfer credit cards

Shop around – balance transfer periods vary massively between different credit card companies.

Transfer fees - shop around for transfer fees. Credit card companies watch for customers who switch from one 0% balance transfer credit card to another, and charge a fee for doing so – you need to find the lowest possible balance transfer fee.

Pay you debt in time - Before switching your debt to one of these interest free credit cards, you need to work out how much you will have to pay each month so you don’t go beyond the 0% interest period. You also need to check how much interest you will pay if you cannot pay back the debt in time.

If you are coming to the end of the 0% balance transfer promotion and don’t think you can pay all of the remaining balance in time, consider moving your debt to a different 0% balance transfer credit card, or to a lifetime balance transfer credit card. However, you need to be careful because there will usually be a charge for doing so.

Don’t spend on your 0% balance transfer credit card – view it instead as a loan which you pay off every month, otherwise you could be stung with very high interest on purchases.

Don’t apply for too many 0% balance transfer credit cards – this can have a negative effect on your credit rating.

Credit Choices offers free price comparisons and advice on interest free credit cards and 0% balance transfers.

© 2010 Copyright Credit Choices - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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