Martin Lewis explains how to pay off your card debt without breaking the bank
Money saving expert Martin Lewis explains exactly how to manage January card bills so that you pay as little as possible to pay them off
Mailboxes get dangerous at this time in January, and it’s not just because of pinched fingers.
Post takes on a demonic tinge for many waiting for credit card bills to land on the doormat after pounding them over Christmas.
If your plastic has a festive hangover, don’t ignore it, it’s time to sort it out.
There are three main rules for sorting your existing debt:
- Stop borrowing more.
- Lower the interest rate. This means your repayments will pay off the actual debt and not just benefit the lender.
- If you have more than one debt, pay off the one with the highest interest rate first – since it’s growing the fastest – and only pay the minimum amount on everything else.
The balance transfer TACTICS
The key weapon in lowering interest rates is a balance transfer.
This is where you get one or more new cards that pay off debt on existing credit or store cards for you, allowing you to defer and owe the debt, but with no interest charges.
And here’s another “rule of three” to get the right card.
1. Do not just apply, but first see what you will be accepted for. When you apply for a credit card, they do a credit check.
Unfortunately, banks are the kind of organization that will lend you an umbrella when the sun is out and reclaim it when it rains.
As such, those most in need of reducing their existing debt costs tend to be those struggling the most to be accepted.
Worse, simply applying for a card will flag your credit file, which has a minor negative impact. So if you get rejected, it becomes a little harder to get accepted elsewhere.
Use an eligibility calculator like mine at moneysavingexpert.com/BTeligibility to help
These give you the right cards by showing which of the top deals you’re most likely to be accepted for – and they don’t affect future credit scores.
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2. Decide on the card with the lowest fee in the time you need . Most balance transfer cards charge a one-off fee on the amount of debt transferred, up to 3% (i.e. £30 for every £1,000 transferred).
In general, the longer the 0% period, the higher the fee. So you should aim for the card with the lowest fee, but make sure the 0% period is long enough.
So calculate how long you expect to take to pay off the debt, add something to be safe, and then choose the lowest fee within that time. If you’re not sure, play long and play it safe.
The longest current 0% card is barclaycard.co.uk with ‘up to’ 38 months 0% with a charge of 1.4% (19.9% rep APR thereafter). The longest free card is halifax.co.uk at ‘up to’ 29 months 0% (19.9% rep APR thereafter).
Full best buys at mse.me/balancetransfers
3. Watch out for “up to” cards . They tend not to say this openly, but you’ll spot it in the fine print. That means, depending on their creditworthiness, some who are accepted get a shorter 0%. Frustratingly, there’s no way to know beforehand.
However, if you run an eligibility check and the only cards that come up that give you a good chance of getting “up to”, you’ll probably get less 0% with all of them in general.
The longest card without up to 0% is sainsburysbank.co.uk at 36 months 0% with a fee of 2.89% – so if you’re accepted that’s what you get. It also offers a no up to fee option for 28 months 0% (both are 18.9% rep APR thereafter). If you have a good chance of getting these, they may be worth it.
Golden Rules for Balance Transfer
Getting the right card is only half the battle, once you have it you need to make sure you are using it correctly.
- Always pay off the card debt or resend before the 0% ends or you pay the high APR.
- Never miss the minimum monthly repayment or you will lose the 0% deal.
- Do not spend or withdraw cash on the card. It’s usually not cheap.
- Usually you need to make the transfer quickly, most cards have a limit of 60-90 days to get the 0%.
Trouble sleeping because of debt?
If you can’t make even the minimum monthly payments, you have non-mortgage debt greater than a year’s salary, or you’re suffering from depression or anxiety because of it, then you’re in what I call what I call a debt crisis.
In that case, forget what I wrote above and get free personal debt advice help from CitizensAdvice.org.uk , capuk.org , StepChange.org or NationalDebtline.co.uk instead
They are there to help, not to judge. The most common thing I hear afterwards is, “I finally slept well.”