If you’re one of the millions of Britons carrying credit card debt, Martin Lewis, the renowned consumer champion, has a top tip that could save you a significant amount of money. In his latest Money Saving Expert newsletter, Lewis highlights the rising trend of credit card borrowing, with figures showing an almost 8% increase over the past year. He emphasizes the importance of tackling debt head-on, stating that ignoring it only exacerbates the problem.
His solution? Balance transfers. Lewis considers switching to a 0% balance transfer card a key weapon in the fight against credit card debt. These cards allow you to transfer your existing balance to a new card, effectively paying off your old debt with a zero-interest period. This means more of your repayments go towards clearing the actual debt, rather than simply covering interest charges.
The potential savings are significant. Consider a scenario where you have a £2,495 balance (the UK household average) and find a year-long interest-free balance transfer card. By paying back £230 per month, you could save £241 in interest and pay off your entire balance over a month earlier, assuming no further spending on the card.
Lewis acknowledges that the exact amount you save depends on factors like your initial debt, interest rate, and monthly repayments. However, with average APRs currently hovering around 19%, the potential for substantial savings is undeniable.
Martin Lewis’s Balance Transfer Golden Rules
Lewis offers a set of golden rules to ensure you make the most of a balance transfer:
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Clear all debt before the 0% period ends:
Pay off the balance in full before the interest-free period expires, or consider another balance transfer to avoid accruing interest.*
Never miss the minimum monthly repayment:
Failure to meet the minimum payment can jeopardize your 0% interest rate. Lewis recommends setting up a Direct Debit for the minimum payment and making additional payments manually as you can.*
Don’t spend or withdraw cash on the card:
These actions usually fall outside the 0% interest rate and can lead to accumulating more debt.*
Complete the balance transfer at the time of application:
If you don’t do this, you typically have a limited window (usually 30 to 90 days) to complete the transfer before the deal expires.*
Exercise caution with poor credit balance transfers:
If you have a low credit score, Lewis suggests this should be a wake-up call to manage your finances carefully. Avoid taking on additional debt and create a budget.Navigating Balance Transfers
To find the right balance transfer card for your needs, Lewis recommends using an online calculator to check your eligibility. This soft search won’t affect your credit score and provides a good indication of your chances of approval. Multiple applications can impact your credit score, so it’s crucial to be selective.
Once you’ve determined your eligibility, focus on finding a card with the lowest fee and a 0% interest period long enough to clear your debt. Remember, some cards charge a one-off fee for balance transfers, and these fees tend to be higher for longer 0% periods.
Prioritize Debt Repayment
Lewis emphasizes the importance of prioritizing debt repayment over saving. While saving is essential, the interest charged on credit cards or loans is likely to be higher than the interest earned on savings accounts. Therefore, it makes financial sense to clear your debts as quickly as possible.
By following Martin Lewis’s advice and taking advantage of balance transfer cards, you can significantly reduce your credit card debt and take control of your finances.
