Clear your overdraft by Christmas

By using a sneaky credit card trick you could turn your expensive overdraft into an interest-free loan.

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By Christmas lunch you could be overdraft free. But while your bank account might be back in the black again, sadly this process doesn’t involve a magic debt-clearing wand. You’ll still have to pay off the debt, it will just cost you a lot less.

How do you do it? By transforming your overdraft into an interest-free loan.

This is how it works.

Overdrafts on current accounts can be painfully expensive. Many current accounts charge a 19% interest rate on authorised overdrafts. And if you don’t get permission from your bank to go into the red, the rates can be even higher.

Money transfer

One way to pay off your overdraft is to make a 0% money transfer from your credit card. In other words, you move money from your card to your current account, and you then use that money to pay off your overdraft.

A money transfer is similar to a 0% balance transfer, but with two differences:

    1. You’re transferring money from a card to a bank account – not from one card to another.
    2. You’ll normally pay a higher fee for a money transfer. Fees for money transfers are usually around the 4% mark whereas balance transfer fees are typically between 1% and 3.5%.

Sadly, most credit card providers don’t offer a 0% money transfer facility on their cards, but MBNA has been the exception for a long time.

And the good news is that MBNA has just improved the money transfer offer on its top 0% card. If you take out the new MBNA 22 Month Platinum Visa card, you could transfer money from the card to your current account and not pay any interest for 22 months. I can’t remember ever seeing such a long 0% period for a money transfer, so this is a fantastic offer.

You must make the money transfer within 60 days of taking out the card and you also have to make the minimum repayment each month. If you miss a payment, your 0% deal will probably end and you’ll have to start paying the normal interest rate of 16.9%.

You’ll also start paying 16.9% interest if you haven’t paid off all the debt by the end of the 22-month period – that’s unless you can then transfer the debt to a conventional 0% balance transfer card.

However, the biggest downside to the card is that you have to pay a 4% fee when you make the transfer. This is an upfront fee that is added to your debt when you make the transfer.

4% isn’t cheap, but it’s less than what you’d have to pay for a personal loan, and way cheaper than an overdraft.

Rivals

So are there any rival money transfer credit cards out there?

The Virgin Balance Transfer credit card offers a 20-month 0% period for money transfers and charges a 4% fee. So it’s very similar to the MBNA card but the 0% period is shorter.

Another option is the Post Office Platinum card. It charges a lower fee for money transfers – 2.98% - but the 0% period is shorter at 14 months.

If you think you’ll be able to pay off the credit card debt in three or four months, then take a look at the AA Transfer Plus card.

It doesn’t offer a 0% period for money transfers – instead it charges 6.9% interest from day one - but the good news is that the transfer fee is only 2%. This card could work out cheaper if you started to pay off significant chunks of the debt after just one month and paid off the whole debt within four or five months.

It’s also worth noting that the AA and Virgin cards are all operated behind the scenes by MBNA. So if you’ve transferred a debt in the past to an MBNA card, you may not be able to do a money transfer to the MBNA, Virgin or AA cards. Your only option is the Post Office card.

Not just for money transfers

Going back to the MBNA Platinum Visa card, remember that it’s not just for money transfers. You could also use it for a more conventional balance transfer where you move a debt from one credit card to another.

For a conventional balance transfer, you’ll be charged a 2.85% fee and you won’t have to pay any interest for 22 months. Those are pretty attractive terms for a balance transfer, but they’re not the best on the market.

That honour goes to either the Barclaycard 23-month Visa or 24-month Visa. You can see how the MBNA card compares with the Barclaycards in this table:

Card

0% period for balance transfers

Balance transfer fee

Fee paid on £2,000

Fee paid on £5,000

Barclaycard 23-month Platinum Visa

23 months

2.6% (minus £30 refund)

£22

£100

Barclaycard 24-month Platinum Visa

24 months

2.8% (minus £30 refund)

£26

£110

MBNA Platinum Visa

22 months

2.85%

£57

£142.50

Capital One Platinum MasterCard

Until 31ST October 2014

2.9%

£58

£145

Tesco Clubcard Credit Card for Balance Transfers

22 months

2.9%

£58

£145

Halifax 22-Month MasterCard

22 months

3%

£60

£150

Natwest Platinum MasterCard

22 months

3.2%

£64

£160

HSBC Credit Card (existing customers only)

23 months

3.3%

£66

£165

Natwest Platinum BT Credit Card

23 months

3.5%

£70

£175

You can see that the Barclaycards offer longer 0% periods and charge lower fees. But if you can’t get a Barclaycard because you’ve transferred a debt to a Barclaycard in the past, then the MBNA is a very attractive proposition.

And if you want to do a money transfer, then the MBNA card is definitely the best of the bunch!

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