The cheapest way to borrow now

In today's gloomy economic climate, borrowing to make a large purchase is something we should all think twice about. However, if you must use credit, a 0% purchases credit card could be your cheapest option. Victoria Bischoff explains…

The credit crunch has forced many of us to tighten our belts, reorganise our finances and avoid getting into unnecessary debt.

Unfortunately, as we all know, just when you think you have your head above water and your finances sorted, the washing machine will break, the TV will blow up or your computer will be destroyed by a deadly virus.

If you find yourself facing unforeseen costs and need to use credit to cover them, spending on a 0% purchases card could help to ease the strain on your wallet.

With careful planning and budgeting, cards that offer a 0% interest rate on new purchases can help spread the cost of an expensive outlay over a period of time - and it won't cost you a penny extra.

Budget for your borrowing

Many people worry that credit cards encourage us to live beyond our means - and these concerns have grown more and more serious in light of the financial crisis. Yet, if you are careful not to borrow more money than you can afford to pay back, some credit cards can actually help you to save money.

The key to using a credit card effectively is to plan all your purchases. In addition, it's important to ensure you never spend on a credit card without first working out how much you can afford to repay each month, and how long it will take to clear your debt

Are 0% deals too good to be true?

When you use a 0% purchases card you will not be charged any interest on your spending while the offer lasts.

However, 0% deals are only introductory offers and won't last forever. If you don't clear your balance before your time runs out, you will begin paying interest at the usual rate - typically a not-very-appealing 16 - 17% APR.

If you know in advance you will be unable to repay your debt within your credit card's promotional period, then it may be sensible to look at the best long term low rate deals instead.

Remember, it is also a risky business to assume you will be able to shift your debt to a card with a 0% balance transfer deal when your 0% purchases deal ends. Although by doing this you will avoid paying interest on your outstanding balance for a set period, there is no guarantee that there will be another 0% deal available to you when you need it

One card does not fit all

Some credit cards offer a 0% balance transfer period in addition to their 0% purchases deal

If you're thinking of using your card to both make new purchases and transfer old debts, it is important to check its order of payments policy.

As a general rule of thumb, most lenders will put your repayments towards any transferred balance before your spending on new purchases. As a result, the money you spend on your credit card will be at the bottom of the payment priority list, accruing interest while you pay off your balance transfer. This trap is known as negative payment hierarchy.

If you fall foul of this trick, it could prove to be an expensive mistake. Even though your purchases debt will be interest free for a set period, as soon as the clock stops ticking interest charges will apply to it - and you won't be able to pay it off until your entire balance transfer debt is cleared.

If you do need to both spend and transfer debts to a credit card, you may be better off opting for a deal which offers the same duration period for both 0% purchases and 0% balance transfer. These should help protect you from the peril of negative payment hierarchy.

Things to remember

• It's a good idea to check your credit rating before applying for any form of credit. If you don't have a good credit rating, you may not find it easy to get the best 0% deals.
• Missing a payment could result in your 0% deal being withdrawn by your lender as well as a nasty fee - usually £12. Therefore, always ensure you pay at least the minimum amount specified each month, and do so on time.

Play your cards right

Remember, with Britain now in a full blown recession, it is wise to avoid borrowing if you can.

Credit cards with 0% purchasing power should only be used if you are confident you have the restraint not rack up more debts than you can afford to pay back. If you miss payments or fail to pay off your full balance before the 0% deal expires, then the clever house of cards you've tried to build could quickly come tumbling down - leaving you with expensive debts that could take years to pay off.

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**