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Shop around for credit card deals while BoE base rate remains low

The average British adult has just over £4400 in unsecured debt, and credit cards are by far the most popular way of borrowing.

But despite that, more than four out of ten cardholders have no idea what annual percentage rate (APR) of interest they are paying, according to Virgin Money.

For most, it will be between 16 and 20%, but it could be as high as 60%, at a time when the Bank of England's base lending rate stands at just 0.5%.

The good news is that, with providers vying for a bigger share of the debt market by offering ever-longer interest-free deals, there has never been a better time to transfer a balance.

Half of those with card debt owe the same or less than they did last year, while almost as many owe more, according to a survey by Moneysupermarket.com.

Kevin Mountford, the comparison site's head of banking, says: "Clearing debts can seem like a daunting task. However, taking the time to work out how much you can realistically afford to repay every month and finding an appropriate product will help to ensure debts are cleared in the most efficient way possible."

Barclaycard fired the first salvo last month, when it unveiled a card allowing 30 months interest free on debt transfers. Halifax immediately retaliated with a 31-month offer, which Barclaycard then matched.

Mr Mountford said of Barclaycard's latest offer: "Anyone wanting to switch from a card at an industry average APR of 18.15%, with a balance of £2500, would save £1275 in interest, which is phenomenal."

But it isn't simply a case of applying for the card with the longest free period and shifting what you owe.

This week, Nationwide Building Society and Virgin Money announced deals that prove the point. Although both have slightly shorter interest-free periods, the overall charging structure means Nationwide's cards will work out cheaper for many borrowers - though the offer lasts only until March 31.

The Barclaycard 31-month card has a 2.99% transfer fee, but the initial charge is 3.55%, with the difference refunded after the transfer. This means it would cost £89.70 to move a £3000 debt.

The Halifax 30-month card has a transfer fee of 3%, while it costs 2.99% to access Virgin's 29-month transfer period, giving virtually identical transfer costs.

Barclaycard, Halifax and Virgin all allow six months interest free on new purchases and charge a typical interest rate of 18.9% once the 0% period is up.

However, Nationwide's interest-free transfer charge is just 0.75%, meaning it costs only £22.50 to access £3000 of 0% borrowing for 26 months, a saving of around £67 on Barclaycard, Halifax and Virgin, if the balance is cleared in this period.

Nationwide also charges no interest on new purchases for 15 months on the Select version of its card, available to current account holders, a considerably longer period than the others are offering. New Nationwide card customers without current accounts will get three months.

Nationwide's typical long-term APR for Select cardholders is 15.9% and for those without current accounts is 17.9%. These rates mean that even if someone took longer than 26 months to clear their debt, incurring interest on the outstanding amount, it could still be significantly cheaper than a card offering 30 or 31 months free.

John Crossley, Nationwide's head of cards and personal loans, said: "There are a lot of credit card deals out there at the moment that look appealing on the outside, but you could end up worse off if you don't take into consideration other factors, such as the balance transfer fee and the interest you pay on balances after the offers run out."

Whichever card you choose, it is essential to check the terms and conditions carefully - or it could end up costing a lot more than you expect.

Only applicants with a good credit history will pay the typical long-term APR - others will be charged more. And this rate will apply to the remainder of all balances not cleared during the free period.

And it is crucial never to miss a monthly payment - as soon as you do this, the interest-free offer will be terminated and your entire debt charged at the long-term rate until it is repaid, which could be very costly indeed.

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