September 4th 2024.
If you're like most people in the UK, you probably have at least one credit card in your wallet. And with the rising cost of living, it can be tough to keep up with credit card debt. But fear not, because financial guru Martin Lewis has a top tip that could save you big time.
In the latest edition of his Money Saving Expert newsletter, Martin referenced new Bank of England figures that show credit card borrowing is up nearly 8% over the past year. "Debt can be depressing, dangerous, and debilitating," he said, "but ignoring it will only make it worse. The best time to tackle it is right now."
And in true Martin Lewis fashion, he also shared a simple yet genius masterclass for lowering credit card bills. According to him, one of the most effective strategies is to check if you can switch to a 0% balance transfer card. "This is a key weapon in cutting your debt faster," he explained. "You get a new card that pays off your debt on existing cards, so you owe it instead, but interest-free for a set period. This way, more of your repayments go towards clearing the actual debt, not just covering interest."
Switching to a 0% balance transfer card could save you hundreds of pounds in interest. One Money Saving Expert user, Raheem, was previously paying over £90 a month in interest alone on his £6,000 credit card debt. After switching to a 0% balance transfer for 27 months, he was able to drastically reduce his monthly payments and get out of what he described as "a hole."
The exact amount you could save will depend on factors such as how much you've borrowed, the interest rate charged, and how much you can repay each month. Currently, the average credit card interest rate is around 19% APR. So, for example, if you have a balance of £2,495 and can transfer it to a card with a 0% interest rate for a year, paying back £230 a month, you'll save £241 and pay off your balance more than a month earlier.
Martin Lewis also shared some need-to-knows before you apply for a balance transfer card. He recommends clearing all your debt before the 0% period ends, setting up a Direct Debit for the minimum monthly repayment, and not using the card for additional spending or cash withdrawals. He also advises doing the transfer as part of your application, or within 30 to 90 days if not, and being cautious if you have poor credit.
To find the best balance transfer card for you, Martin suggests using an online calculator to check your eligibility without affecting your credit score. He also advises going for the lowest fee within a 0% period long enough to clear your debt. And if possible, focus on paying off the debt with the highest APR first, before moving on to the next one.
Lastly, Martin reminds readers to prioritize paying off debt over saving, as the interest you'll earn in a savings account is likely to be less than what you're charged on a credit card or loan. By following these tips and being proactive, you can take control of your credit card debt and save yourself a significant amount of money.
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