A MARTIN Lewis fan has revealed how he saved thousands in credit card interest using balance transfer cards.
John wrote into Money Saving Expert, explaining that the site’s eligibility checker helped him to transfer all of his credit card debt to 0% cards.
A Martin LewisCredit: Rex
He explained that his debt had built up throughout the pandemic, as his employer was refusing to furlough him, pay him or make him redundant.
After using credit cards to pay the mortgage and for day-today living expenses, the amount he owed started to spiral.
Moving the debt to a 0% card meant that he was able to save £190 a month in interest payments, which has allowed him to clear his backlog more quickly.
In total, he’s saved £2,280 in unnecessary interest, which he would have had to pay if he hadn’t switched.
John said: “Over the past year I have used your tool three times to gradually get all the credit card debt on to 0% cards and it is now saving me just over £190 per month in interest payments, which I am using to pay off the debt as quickly as possible.”
If you’ve got debts, a 0% balance transfer card could help you stop paying interest, meaning you can pay off what you owe more quickly. Here’s how it works:
A balance transfer card allows you to shift debts you owe onto a new card with a lower rate of interest.
Often, these cards have extended 0% offers meaning you don’t have to pay any interest for a certain time period – often a year or 18 months.
You can even combine multiple debts all onto one balance transfer card if the limit is high enough.
If it’s not, then you should move the debt with the highest APR (interest rate) to the 0% card, and make sure that any other debts not covered are on your next lowest interest option/
If you keep making the same monthly payments, that means that all of your money is going towards paying off what you owe rather than lining the bank or loan provider’s pockets.
Sara Williams, a debt adviser who writes the blog Debt Camel said: “The best way to use a 0% deal is to set up a standing order to repay the full amount before the end of the 0% term. That way you have converted expensive credit card debt into a 0% loan.
“Too many people think debt at 0% doesn’t really matter – but if you want a mortgage you will find the mortgage lender doesn’t like you having a lot of debt, even if it is at 0% interest.”
There’s often a time limit for when you can make the transfer meaning you’ll need to request it within 60 or 90 days.
You may not be eligible for a 0% deal, but even if you can find a lower interest rate than what you’re currently paying you will save money.
And Martin Lewis says even if you have a small chance of getting the card you want, it may be worth applying if clearing you debt is your most pressing financial need.
He said: “Remember percentages are a clinical measure. A 50% chance means half those in your situation will be accepted. And while 95% seems almost certain, you can still be the 1 in 20 who doesn’t get it. My worry is many are wrongly put off by low odds.”
But if you’re about to apply for a mortgage or some other important credit, you’ll want to stick to cards you’re likely to be accepted for – this is because rejections can harm your credit rating.
How to find the best balance transfer cards
THERE are four key factors to consider when choosing a balance transfer card
- What interest rate you’ll be given – the closer to 0% the better
- How long the introductory rate lasts – the longer it is the more time you’ll have to pay
- The transfer fees – the lower they are, the better
- Eligibility – use an eligibility checker like this MoneySupermarket one to see what you’re likely to qualify for
Ideally you want the lowest rate possible, for a timeframe that’s long enough to pay off all your debts.
Use the eligibility checker to see what’s the best card you can get – and if there are several then check the balance transfer fee to find the cheapest.
You can shop around to compare rates and find the best offers for your personal situation using a comparison site such as Money.co.uk.
One thing to be wary of is that 0% cards often aren’t designed for day-to-day spending so it’s important to try and keep them for your debt transfers.
Salman Haqqi, personal finance expert at money.co.uk said: “Balance transfer cards are not designed for spending. This means they’ll come with incredibly high interest rates on regular purchases, so if you do use one – make sure it’s only to consolidate your debts and not to be used as an alternative credit card.”
Another key tip is to make sure that you’ve paid off all your debt when the balance transfer introductory offer comes to an end.
Otherwise, you’ll be switched to a higher interest rate and may end up paying more than with your original creditor.
If you can’t afford to pay all the debt off in this time, make sure you shop around before any deal finishes so you can make another transfer to a low interest card.
Mr Haqqi added: ““Make sure you pick a provider that offers a 0% interest period long enough for you to pay off your debts.
“For example, if you can afford to repay £50 a month, and your balance is £1,000, it will take you 20 months to clear your debt.
“To avoid paying any interest, you’d need a balance transfer card with a 0% deal that lasts for at least 20 months.”
The most important thing to remember is to always make the minimum monthly repayments – if you don’t you might lose the 0% deal and be stung with expensive interest rates.
Ideally, you should be paying more than the minimum to try and clear your debts before the 0% offer runs out, but it’s worth setting up a direct debit for the minimum amount to make sure you don’t at least forget to pay that.
Andy Shaw, debt advice policy officer at StepChange said: “0% balance transfer cards can be a great option for anyone looking to pay down debt which they’re finding hard to manage, although they should not be seen as a silver bullet to debt problems, and may not be suitable for those who cannot repay the debt within the 0% interest period.
“People should also be wary of any charges they may incur from the balance transfer. If you’re struggling with debt, no matter what the amount, we’d advise getting in touch with a free debt advice charity like StepChange.”
How to get debt help for free
THERE are lots of groups who can help you with your problem debts.
- Citizens Advice – 0808 800 9060
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000
- Debt Advice Foundation – 0800 043 4050
Speak to one of these organisations – don’t be tempted to use a claims management firm that will claim it can write-off lots of your debts in return for a large up-front fee.
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