Could a money transfer credit card help you clear an expensive overdraft or pay off a loan 

I need to clear an overdraft, would a money transfer card save me money?

Do you need to pay off an expensive overdraft, loan or big purchase?

An increasing number of lenders are now offering specialist credit cards that allow borrowers to shift cash directly to their current account for a fee of around 4 per cent.

With generous 0 per cent interest periods of up to 37 months, choosing one of these cards can help cut the costs of existing debt by allowing borrowers to repay what they owe without clocking up extra interest costs.

Expensive debts: Money transfer credit cards can be a useful tool to help repay overdrafts and loans quicker.

Expensive debts: Money transfer credit cards can be a useful tool to help repay overdrafts and loans quicker.

Although borrowing more cash to pay off debt might sound counter intuitive, if used responsibly they can be useful tool to help beat costly overdrafts or clear expensive personal loans.

But remember, this tactic will only work if you are disciplined about repaying.

Cardholders will need to clear the debt before the 0 per cent interest period ends, otherwise the rate reverts to a standard 18 or 19 per cent.

How could a money transfer credit cards work for you?

Clearing your overdraft

An overdraft is one of the most expensive ways of borrowing money - banks usually charge sky-high rates of between 15 and 20 per cent.

Many will also then pile on overdraft usage fees and unpaid item costs.

A £1,500 overdraft clocking up interest at a rate of 19.3 (EAR) per cent would cost a total of £288 over the course of a year, that’s 79p per day.

Paying off that overdraft with a credit card charging the maximum 4 per cent fee would cost £60. A saving of £228 as long as you repaid within the interest-free term.

Remember, don’t be tempted to take out cash from your credit card at an ATM to deposit into your current account as this will incur expensive cash withdrawal fees.

Instead of a personal loan or to pay off existing debt

Personal loan rates are at an all-time low of 3.5 per cent, but this is only on amounts between the £7,500 and £15,000 bracket.

Smaller sums come with higher interest rates. The lowest rate on a £2,000 loan This is Money could find at the time of writing was 12.3 per cent.

This would cost £379.64 in interest when paid back over three years.

A credit card charging a 4 per cent transfer fee would therefore save £299.64 in interest as long as the account holder was able to repay within the promotional period.

Clearing an existing loan with a money transfer credit card would work out much cheaper. But watch out for any exit fees.

Lenders are legally allowed to charge up to 56 days interest on the remaining amount if you choose to clear it early.

For an expensive purchase

The longest 0 per cent interest period on purchases is currently an impressive 26 months, allowing spenders to spread the cost of a large purchase without incurring any extra interest.

But injecting the lump sum into your current account using an interest free money transfer credit card instead could allow you to spread the cost over a longer period – up to 36 months.

Remember you will also have to factor in the cost of the transfer fee though.

These cards could also be a useful alternative to purchase credit cards if you are unable to make the transaction using a credit card.

Pick wisely: Make sure to consider the transfer fee and any 0 per cent offers or low rates.

Pick wisely: Make sure to consider the transfer fee on top of any 0 per cent offers or low rates.

Choosing the right money transfer credit card

As with more popular balance transfer credit cards there are several variations of money transfer credit card to consider.

Which card is best for you will likely depend on how long you need to clear your debt.

The longest interest-free deals will tend to come with the highest transfer fees.

But some providers do offer specialist cards that offer reduced fees of 1-2 per cent or waive the handling cost altogether.

These options will likely come with slightly shorter 0 per cent interest periods of 12 months to two years.

Those who would prefer to sidestep the dangers of disappearing 0 per cent interest deals can also find low-rate credit cards designed for money transfers.

These offer a consistently low rate of interest - as little as 7.4 (APR) per cent - on any debt which can work out a cheaper option for those who need longer to repay than any 0 per cent deal lasts.

Watch out

The most important thing to remember is that using a money transfer card is only a suitable option if you can be disciplined about repaying.

It can be tempting to only cover the minimum amount required by your credit card provider, particularly when borrowers know they have a lengthy period free from interest.

However repaying the borrowing before interest kicks in is the top priority.

Working out a repayment plan and setting up a monthly direct debit will help repay the debt in time.

It is also worth avoiding using the credit card for everyday spending too as this will make it harder to clear the balance within your time limit.

Remember going over your credit limit or missing a monthly repayment risks your 0 per cent interest deal being removed.

Additional information