PLAY YOUR CARDS RIGHT
Money-saving expert MARTIN LEWIS on how to stop paying credit card interest now
CAN’T afford to clear your credit card each month? You can’t afford NOT to try a balance transfer.
This is a clarion call to everyone paying interest on existing credit card debt... CARDE DIEM (ahem, seize a top card today).
That’s because, for the first time in an age, a host of lenders are again vying to top the balance transfer charts – meaning your chance of one of them accepting you has increased.
A balance transfer is your key weapon
A 0% balance transfer is where you apply for a new card to pay off existing credit or store card debt(s) for you, so you owe it the money instead, but it’s interest-free.
This means more of your repayments clear what you owe, rather than just covering interest, so you get debt-free quicker.
Here’s what you need to know:
You’ve usually up to 60 or 90 days after application to sort this. Though it’s easier if you do it as part of the application.
Acceptance is the challenge, but applications hurt your credit worthiness. Apply for a card and it puts a mark on your credit file, so you don’t want to apply unless acceptance is assured.
Use an eligibility calculator to find out what cards will accept you.
This is like a credit matchmaker – it’ll show you which cards you’re most likely to get.
It’s done via a ‘soft credit search’, which means only you see it on your credit file – lenders can’t – so it doesn’t affect your ability to get future credit, helping you home in on the right card with minimum applications.
Some firms offer this for their own cards, or you can use my moneysavingexpert.com/ Eligibilitycalc which shows your chances for most top cards, all in one place.
Check if you’ll definitely get the full 0% length.
Some cards offer ‘up to’ 0% lengths, which means not everyone gets the headline deal – this is shown in the summary box.
For example, at the time of writing, of the cards at 29 months’ 0%, Sainsbury’s has the lowest fee, at 2% – but it’s an ‘up to’, so some accepted will only get 21 months.
Yet HSBC and M&S Bank give all accepted customers the full 29 months 0%, albeit for a higher 2.75% fee – they may be worth going for if the eligibility calculator shows you’ve decent odds.
If you’ve a choice of cards, go for the lowest fee within the time you need to repay. Most cards charge a one-off fee which is a percentage of the debt transferred. There are a range of cards at up to 29 months at 0%, but for those you’ll pay a
roughly 3% (£30 per £1,000) fee.
Santander offers the longest nofee card, at 18 months.
There are also ‘poor credit’ balance transfer cards. For example, Capital One gives some with past credit problems nine months at 0% with a 3% fee. But it’s a horrid 34.9% rep APR after – so only move what you can comfortably clear before the 0% ends.
Low eligibility chances don’t always mean ‘don’t apply’.
A 50% chance means half those in your situation will be accepted.
And while 10% seems very low, that still means 1 in 10 who apply will succeed.
So if that’s your best chance, and this is your priority credit (ie, you’re not about to apply for a mortgage or similar)
– a rejection making your credit file doesn’t overly matter.
The reason to protect your credit history is so you can get maximum use from it when needed – and clearing debt is your most pressing financial need.
Credit limit not big enough? Take what you get and try again.
If you apply, are accepted, but the credit limit isn’t big enough to shift all your debt over: the application is on your file, so you may as well shift as much of the highest APR rate debt as you can to the new card.
Then see if you’ve a decent chance of getting another card.
In serious debt? Seek free help. I’ve three questions for you. A) Do you struggle to make the minimum monthly payments?
B) Is your total debt (excluding mortgage and student loan) over a year’s salary? C) 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 help from citizensadvice.org.uk, stepchange.org or nationaldebtline.org. And if you need emotional support, try capuk.org. They’re there to help, not judge.
The most common thing I hear after is: “I finally got a good night’s sleep.”
If you do get a card, always follow the GOLDEN rules
Getting the right card is only the starting point. To make it work you need to strictly follow the recipe, or it can leave a sour taste.
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%. It’s best to set up a direct debit for the minimum payment as a safety measure – and manually pay off more on top if you can.
Don’t spend/withdraw cash on the card. It usually isn’t at the cheap rate.
Got multiple debts? Repay highest APRS first. Some try to repay their biggest debt first or spread repayments equally. Yet it’s the debt with the highest APR that’s growing most quickly, so that’s the priority. Focus all spare cash on it, paying just the minimum on all others. Once it’s clear, focus on the next highest APR and so on.
Use an eligibility calculator to find out what cards will accept you. This is like a credit matchmaker – it’ll show you which cards you’re most likely to get. Martin Lewis
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 tomoneysavingexpert.com/latesttip