MARTIN Lewis’ MSE has issued an urgent warning to anyone with credit card debt.
The consumer experts have revealed how a balance transfer credit card could help people in debt save thousands of pounds.
Martin Lewis’ MSE has issued an urgent warning to anyone with credit card debt.
Writing in this week’s MoneySavingExpert (MSE) newsletter, the team explained how the card works and how it could save you cash.
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 typically you pay no interest for a set period.
This means your debt is easier to manage because it’s all in one place.
The MSE said: “If you’re paying interest on credit cards, a balance transfer credit card remains one of the most powerful tools in your MoneySaving belt, often saving £100s or £1,000s.”
They added that the longest deals currently give you 0% for around 2.5 years – time to get costly debt under control.
An MSE fan shared how he managed to shift his debt through using the card.
John said: “Over the past year I used your site three times to gradually get all my credit card debt on to 0% cards, saving just over £190 a month in interest, which I’m using to pay off the debt as quickly as possible.”
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
MSE said 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 Virgin Money which is a 0% for a 31-month deal, according to the team.
Although it does come with a hefty fee of £35 per £1,000 shifted, so other deals might be better if you can pay your debt off sooner.
Natwest for example is offering a 30-month long 0% deal with a lower 2.99% fee.
MSE said: “Worth considering over Virgin if you’ve good odds for both, as although it’s slightly shorter, the fee is lower.”
It’s also offered by sister banks RBS and Ulster Bank.
Sainsbury’s Bank also offers a decent deal currently at 0% for a 1% fee for up to 21 months.
The only slight catch is that what 0% length you get depends on your credit score.
MSE said: “If you’re showing as pre-approved in our eligibility checker, you’ll get the full 21 months at 0%.
“If you can clear the card in that time, it’d cost just £10 per £1,000 shifted (the one-off fee), so is much cheaper than the cards above.”
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.
It’s important not to let yourself get sucked into overspending – spend as usual and 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 and 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]