Martin Lewis advises on reducing debt on credit cards
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A zero percent balance transfer is your key weapon
It’s where you apply for a new card to pay off existing credit or store card debt(s) for you, so you owe it the money instead, but it’s interest-free. This means more of your repayments clear what you owe, rather than just covering interest – so you get debt-free quicker.
Here’s what you need to know:
Acceptance can be a challenge – use an eligibility calculator to find out what card(s) you can get.
It works via a ‘soft’ credit search, which means only you see it on your credit file – lenders can’t – so it doesn’t affect your ability to get future credit, helping you home in on the right card with minimum applications.
Some providers offer this for their own cards, or you can use my www.moneysavingexpert.com/EligibilityCalc which shows your chances for most top cards, all in one place.
Check you’ll get the full zero percent length.
Some cards offer ‘up to’ zero percent periods, which means not everyone gets the headline deal – this is shown in the summary box.
For example, of the cards currently at 29 months’ zero percent, Sainsbury’s Bank has the lowest fee, at two percent – but as it’s an ‘up to’, some accepted will only get 21 months. Yet HSBC and M&S Bank give all accepted the full 29 months’ zero percent, for a slightly higher 2.75 percent fee.
If you’ve a choice of cards, go for the lowest fee within the time you need to repay.
Most cards charge a one-off fee: a percentage of the debt transferred. There are several cards offering 29 months’ zero percent, but for those you’ll pay a roughly three percent (£30 per £1,000) fee. Santander offers the longest no-fee card, at 18 months.
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There are ‘poor credit’ options if you’ve had past problems.
For example, Capital One gives some nine months’ zero percent for a three percent fee. But it’s a horrid 34.9 percent interest after – so only move what you can comfortably clear before the zero percent ends.
Low eligibility chances don’t always mean ‘don’t apply’.
A 50 percent chance means half those in your situation will be accepted. And while 10 percent seems very low, that still means one in 10 who apply will succeed.
So if that’s your best chance, and this is your priority credit (ie, you’re not about to apply for a mortgage or similar), a rejection making your credit file doesn’t overly matter.
The reason to protect your credit history is so you can get maximum use from it when needed – and clearing debt is your most pressing financial need.
In serious debt? Seek free help instead.
Three questions: A) Do you struggle to make the minimum monthly payments? B) Is your total debt (excluding mortgage and student loan) over a year’s salary? C) Do you have sleepless nights or depression/anxiety over debt?
If you’ve said yes to any of these, forget the solutions above and instead get free, one-to-one debt-counselling help from www.citizensadvice.org.uk, www.stepchange.org or www.nationaldebtline.org.
And if you need emotional support, try www.capuk.org.
They’re there to help, not judge. The most common thing I hear after is: “I finally got a good night’s sleep.”
If you do get a card, always follow the GOLDEN rules
- Always clear the debt or transfer again before the zero percent ends or the interest jumps to around 20 percent.
- Never miss the minimum monthly repayment or you can lose the zero percent. Set up a direct debit as a safety measure and manually pay off more on top if you can.
- Don’t spend or withdraw cash on the card. It usually isn’t at the cheap rate.
- Got multiple debts? Repay the highest APR first. It’s growing most quickly, so focus all spare cash on it, paying just the minimum on all others. Once it’s clear, focus on the next highest APR, and so on.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 7.5 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip
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