Ditch the debt this September with Martin Lewis
September is the new January, with many rushing to get their finances back in shape after a holiday hangover. The good news is that our Money Saving Expert Martin Lewis says there’s a vicious price war on right now, with by far the best debt-shifting cards ever seen. So if you’re paying interest on credit cards, now is a perfect time to slash it.
Of course, the obvious starting point is to stop borrowing any more and pay off what you have. Otherwise, while cutting the cost of your existing debts will help, it won’t start you on the path towards being debt-free.
So what do you do about credit card debt? The crucial weapon is a 0% balance transfer card. That’s where you get a new card that pays off old card(s) for you, so you owe it, but without any interest. This means more of your repayments clear the actual debt, so you get debt-free quicker.
There are lots of deals available on the market.
How do I ensure I get accepted? To get a balance transfer card you’ll be credit-scored, and sadly lenders are the types of firm that give you an umbrella when the sun is shining, then take it off you when it’s raining. So, many who just want to cut the cost of credit get rejected, or get worse deals.
Worse still, the only way to truly know whether you’ll get a card is to apply for one. However, making an application leaves a mark on your credit file, which can have a negative effect on future applications.
However, now there are a range of ‘soft search’ tools which allow you to see which cards you’re most likely to get before applying, and without damaging your credit file. Some are linked to card firms; others comparison sites. Martin’s Balance Transfer Eligibility Calc shows you your odds for almost all top cards.
What are the best deals?
The longest 0% deals available are the longest 0% deals ever. They include MBNA, which is 'up to' 41mths for a one-off fee of 3.49% of the amount you transfer, and Virgin Money, which is the same length, but has a higher 4% (min £3) fee. But unlike MBNA, it isn't 'up to', so if you're accepted you'll definitely get the 41mths.
If you can repay quicker, there are cards with lower fees. In fact, Halifaxis 'up to' 25mths 0% with NO FEE; Tesco is the same with a shorter 24mths 0%, and it isn't 'up to', so if accepted you'll get 24mths. Plus, right now Barclaycard, which is up to 23months 0% with no-fee, is giving £20 cashback if you transfer over £500, so you’re actually quids in on that.
Do note when I mention card firms that these companies have lots of different cards, so make sure you’re applying for the right one.
Anything else to watch for?
Yes, there are the golden rules…
1) Aim to clear the debt or shift again before the 0% ends, or rates rocket to the representative APRs, which are 20.9% (MBNA & Virgin), 18.9% (Halifax), 20.6% (Tesco) and 18.9% (Barclaycard).2) Repay at least the set monthly minimum, or you may lose the 0% rate.3) Don't spend/withdraw cash on these. It usually isn't at the cheap rate and cash withdrawals hit your credit file.
If people have lots of debts, which should they pay off first?If you’ve multiple cards, don’t just split the amount you repay on various debts – far too many people follow this costly tactic.
List all your debts in order of their interest rate, then focus all your spare cash at clearing the debt with the highest interest rate first, for the simple reason that it costs you the most.
This means you should make just the minimum repayments on all other lower interest-rate debts. Once the most expensive is repaid, shift focus to the next-highest rate card and continue until debt-free. You’ll be debt-free far more quickly.
Though if you’ve only got one card, always try to pay more than the minimum – even just a few pounds – as in the long run it can clear your debt far more quickly.