GETTING YOUR DEBT UNDER CONTROL...
WHETHER IT’S MORTGAGES, CARDS OR OVERDRAFTS, MARTIN LEWIS’ DEBT COSTCUTTING MASTERCLASS CAN HELP
THE Bank of England base rate is now 10 times higher than it was six months ago – leaping from 0.1% then to 1% now, after four rises.
This direction of travel means anyone with debt needs to get on top of it as soon as possible, to make it safer before things get more expensive.
So let me take you through the big categories to see if you can save £100s or £1,000s.
1. MORTGAGES: THE CHEAPEST RATES HAVE DISAPPEARED
The latest 0.25% point base rate increase adds roughly £12/mth per £100,000 of mortgage for those on standard variable rates or tracker mortgages.
Those on fixes won’t see a change until their deal ends, but then many will be in for a shock. Back in October, there were over 50 fixed-rate mortgage deals below 1%. Now the lowest fix is 2.1%.
With further rate rises predicted, if you’re not locked into a fix or your fix is nearly ending, checking if you can save now is a must-do.
Look at your existing lender’s deals. This is called a ‘product transfer’. It used to be a c**p option, but these days, as existing lenders can forgo affordability checks if you’re not borrowing more and there’s likely to be less paperwork and fewer fees, it’s a good benchmark.
Speedily check if other deals out there can beat that. Use a whole of market comparison site that covers all deals, including ‘direct only’
(ie, those that aren’t offered by a broker) such as my money savingexpert.com/mortgages/ best-buys comparison.
If it looks like switching’s a winner, focus on acceptance. Lenders do both credit and affordability checks which can kibosh applications. It’s tough to know who’ll accept you but find a good mortgage broker and they have information on this that’s very difficult for consumers to get themselves.
Sites such as unbiased.co.uk can help you find a face-to-face broker near you.
2. CREDIT AND STORE CARD DEBT: SHIFT TO UP TO 34 MONTHS 0%
A 0% balance transfer is where you get a new card to repay debt on old cards for you, so you owe it instead but at 0%.
As more of your repayments then clear the debt itself rather than cover the interest, you get debt-free much quicker (as long as you don’t borrow more). Check what cards will accept you before you apply using an eligibility calculator.
Some firms offer this for their own cards, or use my moneysaving expert.com/EligibilityCalc which shows your chances for most top cards, all in one place.
Aim for the lowest fee within the time you need to repay. Most cards charge a one-off balance transfer fee, as a set percentage of the debt transferred.
You want to minimise this, but if you’re unsure go for a longer 0% length.
Up to 34 months 0% is available. Lenders including uk.virginmoney.com and hsbc.co.uk offer deals over 30 months, for a roughly 3% fee (at the time of writing).
If you can repay quicker santander. co.uk offers the longest no-fee card at 21 months – so if you can repay in that time, there’s no cost.
Watch out though: some cards are ‘up tos’, meaning some accepted won’t get the full 0% length. Check in the summary box before applying.
Always follow the balance transfer golden rules:
■ Clear the debt or transfer again before the 0% ends or you’ll pay the 20%-ish representative APR in interest.
■ Never miss the minimum monthly repayment or you can lose the 0%. ■ Don’t spend/withdraw cash on the card. It usually isn’t at the cheap rate.
3. OVERDRAFTS: HIDEOUS 40% RATES ARE STANDARD
Overdrafts are an even bigger danger than card and loan debt. Almost all major banks charge about 40% EAR for overdrafts, double the interest of many high street credit cards.
That means most people with credit cards and overdrafts should pay the minimum on the card and focus on reducing the overdraft, not vice versa.
Firstdirect.com and nationwide.co.uk offer 0% overdrafts for many newbies. And, at the time of writing, they pay you to switch to them (check eligibility criteria first).
For updated info see money savingexpert.com/BankAccounts.
You could also consider a 0%
Most people with credit cards and overdrafts should pay the minimum on the card and focus on reducing the overdraft, not vice versa
Martin Lewis
‘money transfer’ credit card.
For larger overdrafts, a few specialist cards allow 0% money transfers for up to 18 months – where for a small fee the card pays cash into your account, clearing your overdraft, so you owe it at 0% instead.
With an overdraft, try to repay a set amount each month, eg, £50 (so you should start the next month with a £50 smaller overdraft than the month before).
IN SERIOUS DEBT? SEEK FREE HELP INSTEAD
Do you struggle to make the minimum monthly payments?
Is your total debt (excluding mortgage and student loan) over a year’s salary?
Do you have sleepless nights or depression/anxiety over debt?
If you’ve said yes to any of these, forget the solutions above and instead get free, one-to-one debt counselling from citizensadvice.org.uk, stepchange.org or national debtline.org.
They’re there to help, not judge.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 7.5 million people who get his free Money Tips weekly email, go to moneysavingexpert.com/latesttip