MARTIN Lewis’ MoneySavingExpert has issued a warning to anyone with a credit card.
The consumer site has urged those struggling with debt to apply now for a “key cost-cutting weapon”.
Martin Lewis’ MoneySavingExpert has issued a warning to anyone with a credit card
In the latest MoneySavingExpert (MSE) newsletter the team revealed how a 0% balance transfer credit card could help people in debt save hundreds of pounds.
Balance transfer credit cards are a great idea if you have debt spread across a few different cards or if your interest rate is high.
These let you move the balance from other cards onto a new one, and you pay no interest for a set period.
This means your debt is easier to pay off because money saved on interest can be used to erode the original borrowing.
But, MSE warned that time is of the essence due to many banks pulling 0% offers over the past few weeks.
Writing in the newsletter, they said: “Last week, we warned of rumours that some lenders were on the brink of pulling top 0% balance transfer deals.
“Sadly they then did, and we don’t think it’ll stop here. So if you’ve existing debt, don’t delay.
“A balance transfer is the key cost-cutting weapon – it’s where you get a new card that pays off debt on old credit and store cards for you, so you owe it instead, but at 0% interest.”
The team clarified that it means more of your repayments are used to clear the actual debt rather than just covering interest.
They added: “It’s worth starting by looking at how some of last week’s best buys have changed.”
For example, one from Virgin Money was previously 0% for a 31-month deal, but that has since been pulled and is now just for 29 months instead.
Below we explain how a balance transfer credit card works and how to find the best deal, as well as the risks you could encounter.
How does a balance transfer credit card work?
If you have credit or store card debts that are gaining interest you can move the money you owe onto the card.
That means you can focus on repaying the debt, rather than the amount added in interest, and it can help you get back in the black faster.
But it’s important to note that you can’t transfer a balance between cards from the same bank.
How to transfer your debts on a 0% card
You can usually apply for a balance transfer credit card online or on the phone, and banks may be able to help in-branch.
To make an application, you will need to provide your name, address and email address as well as details of your income so a provider can assess your eligibility.
You will also need to provide details of how much money you want to transfer to the new card, but you can often do this after you have been accepted.
Applicants need to be over 18.
If your application is approved, you will need to transfer the balances within a set period, usually around 60 or 90 days.
Your old balance will then be cleared and you can start making interest-free repayments on your new card.
There are lots of different approaches to clearing your debts, including the snowball method which involves repaying the smallest first.
How to find the best deals
You should always use an eligibility calculator before applying, that’s because every credit card application leaves a mark on your credit file and can affect your credit score.
The best cards currently available include one from Natwest for example is offering a 30-month long 0% deal with a 2.99% fee.
Or, the bank is also offering a no-fee card too if you can pay it off in 19 months.
MSE said: “Most balance transfer deals charge a one-off % fee of the debt transferred (eg, 3% is £30 per £1,000 transferred) – so you want to minimise that.
“If you can repay within 19 months the NatWest no-fee card is an easy winner, as there’s no cost at all.
“If you’re unsure, play safe and go for the longest card you can get, as the fee is less important than making sure you stay on 0%.”
M&S Bank also offers a decent deal currently at 0% for a 2.99% fee for 28 months with a £5 minimum.
Barclaycard is currently offering ‘Up to’ 30 months 0% with a 3.45% fee.
Although, MSE warned: “If you’ve a good chance of a non ‘up to’ card, it’s likely the winner.
“With ‘up to’ cards, even if accepted, you may be given a shorter 0% and a higher fee.”
This means that unless the eligibility calculator shows you a guaranteed rate for an “up to” card, if you’ve an equally good chance of a similar non “up to” card, then these are safer as you know if you’re accepted you’ll definitely get the full deal, according to MSE.
Know the risks
Not using a credit card effectively can wreak havoc on your finances and your credit score.
If you don’t keep up with repayments or default on your debt, you are likely to get a black mark on your credit record, which could affect your ability to get a credit card, loan or mortgage in the future.
It’s important not to let yourself get sucked into overspending – always clear the full balance as soon as possible.
And don’t bank on being approved for a card or getting the 0% deal you’d hoped for.
Card providers only have to give the advertised rate to 51% of applicants, so you could end up paying more interest than you bargained for.
If you’ve got a poor credit record, you’re less likely to get the best rates.
And if you are looking for a new credit card, don’t apply for lots at once.
After your 0% period is up, lenders will typically charge you between 15% and 20% interest, so try to move the debt onto another 0% deal if you’ve not repaid it fully by then.
How can I get debt help?
If you’re concerned about debt, don’t bury your head in the sand.
Citizens Advice says it’s important to work out a budget and keep an eye on your bank balance.
Try to pay off more than the minimum on credit cards each month, and pay your most expensive credit card first.
If you’ve got several debts and can’t pay them all, it’s important to prioritise.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Groups like Citizens Advice, StepChange and National Debtline can help you manage your debt and negotiate with your creditors.
You should always have a look at what free options are available for managing debt before you turn to a private firm for support.
There’s also a specific government scheme to help manage debt called Breathing Space, which gives you the right to legal protection from creditors for up to 60 days.
The FCA said consumers can get free and impartial advice from the MoneyHelper website or by telephone on 0800 138 7777.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.
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