How 0% Credit Cards can help you eliminate credit card debt

How 0% APR Credit Cards can help you eliminate credit card debt

It is interesting to know that what started as a marketing gimmick has now become one of the features you expect as standard when you apply for a new credit card. Luckily, for the consumer, 0% credit cards can in fact play a significant role when it comes to reducing credit card debt.

What are 0% APR Credit Cards?
APR is the annual interest rate known in industry jargon as the Annual Percentage Rate. It reflects the total cost of credit to you expressed as an annual percentage (although calculated more frequently) of the amount of outstanding credit. APR was introduced in the UK under the Consumer Credit Act 1974, to ensure comparability of loans, it requires that the APR be published for all regulated loans.

0% APR was introduced by banks that only issued low interest credit cards and did not take any deposit or issue conventional loans, it was used as a gimmick to lure new card users because for this model of lending to succeed, large numbers of customers were important. The gimmick has worked so well that today it is difficult to find a credit card company that does not offer some sort of 0% balance transfer period.

How to use 0% APR Credit Card to Reduce Debt
A 0% APR credit card is extremely useful if you want to reduce or consolidate your credit card debt.
For example, if you have a credit card debt of about £10,000 on average over a year's period and the APR is 19.9% then you will end up paying £2,000 in interest alone. Where as if you transfer that £10,000 to a 0% APR credit card you will have a period of between 6 to 12 months where you won't pay any interest at all. Most credit card issuers will charge you a balance transfer fee, usually 3% of the transferred amount. In this case that would be £300, which would be added to your total credit card balance, making a total of £10,300. If the 0% balance transfer period is 12months, then you will be saving yourself £1700 in that same year.

Now let's say you can afford to pay £400 on the credit card every month, this would reduce your total credit card debt by £4800 over the 12months. Just before the 12 months interest free offer expires, repeat the process by transferring the outstanding balance to another lender with the a similar 0% APR offer, if carried out successfully, the debt would be paid off in just over 2 years, costing you just £504 in balance transfer charges.

The key to making this method work is discipline; you would need to make your payments on time in order to keep a reasonably good credit rating otherwise other creditor may reject your application. You will also need remember to make the balance transfers a month or two before the interest free period reaches its end, just in case there's a delay in your new application.