Martin Lewis issues credit card warning and the ‘core weapon’ to use and beat high interest charges
MARTIN Lewis has warned credit card holders to take advantage of a “core weapon” to avoid high interest charges.
The founder of MoneySavingExpert.com (MSE) is urging people with credit card debt to cut their repayments.
In the latest MSE newsletter, the consumer champion said: “The average credit card interest rate for purchases has jumped four percentage points over the last year.
“Now it’s a shocking 34.7% (so £347 interest on £1,000 static debt over a year), according to financial information site Moneyfacts.
“So check what you’re paying now – frankly, if it isn’t 0%, you need to see if you can fight it.
“The core weapon is a balance transfer.
“That’s when you get a new card that pays off debt on your existing card(s), so you owe it instead but at 0% interest—this means your repayments clear the actual debt, not just mostly cover interest.”
CREDIT CARD NEED-TO-KNOWS
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.
You should always clear the full balance as soon as possible.
If you have a poor credit score, 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 can charge upwards of 40% interest, so if you have not repaid the debt fully by then, try to move the debt onto another 0% deal.
What is a balance transfer credit card?
Balance transfer credit cards could be a useful option if you have debt spread across a few different cards or soaring interest rates.
They allow you to 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 put toward owed finances.
It’s important to note that you can’t transfer a balance between cards from the same bank.
BALANCE TRANSFER GOLDEN RULES
MARTIN Lewis suggests that those taking out a new balance transfer credit card should follow four key rules
- Never miss the minimum monthly repayment, or you could lose the 0% deal and it’ll cost far more
- Aim to clear the card (or balance-transfer again) before the 0% ends, or the rate rockets to the higher APR
- Don’t spend or withdraw cash. It usually isn’t at the cheap rate and withdrawals may hit your ability to get future credit.
- If you don’t transfer at application, you’ve usually only 60 to 90 days to get the 0%. Do check with your lender
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 Barclaycard which is offering a 28-month long 0% deal with a 3.45% fee.
Lloyds Bank is also offering up to 27 months at 0% with a fee of between 3.2% or 3.4%.
To assess all the available cards, visit price comparison websites like MoneySavingExpert’s Cheap Credit Club or Compare the Market.
Once you run your details through an eligibility calculator and you’ve been shown that you’re likely to be accepted, make a formal application.
To do this, 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.
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.
GET FREE DEBT HELP
THERE are several groups which can help you with your problem debts for free.
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800138 1111
- National Debtline – 0808 808 4000
- Debt Advice Foundation – 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write-off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.