Consumer champion Martin Lewis has urged credit card holders to check if they can reduce their debt now ahead of a potential rise in interest rates.
The MoneySavingExpert says credit card deals could worsen if the Bank of England hikes interest rates for the seventh time in a row. The base rate went up by 0.5 percentage points to 1.75% last month. Money markets suggest the Bank could raise rates to 2.5% on Thursday, September 22, in what would be the biggest rise in 33 years.
Writing in the latest MoneySavingExpert newsletter, Martin explained how even though credit cards are not explicitly linked to the base rate, deals have been worsening over time. This is because if the cost of borrowing gets more expensive, banks will offer less competitive deals.
Read More: Martin Lewis says two banks are paying £175 to new and existing customers for switching accounts
With this in mind, Martin has urged anyone who already has credit card debt to check if they can save thousands of pounds now by applying for a balance transfer card. These types of cards typically offer a promotional period of 0% interest.
The idea is that you move your credit card debt onto a balance transfer card so you pause all interest payments for a set period of time, reports The Mirror. "We're already starting to hear a soft under-chant that deals may get worse quite quickly," said Martin.
"So if you need to sort yours out, sooner is safer... Can't afford to clear your credit card? You can't afford not to check for a... 0% balance transfer.
"A 0% balance transfer is where you get a new card to repay debt on other credit or store cards for you, so you owe it instead but at 0%. As your repayments clear the debt itself rather than cover the interest, you get debt-free much quicker (if you don't borrow more)..."
These cards need to be used responsibly, otherwise you could end up adding to your debt. First of all, you need to make sure you can clear the debt before your 0% interest period finishes or you’ll start paying the representative APR.
You also need to always make your minimum repayments, otherwise you risk losing the 0% interest perk, and check if there are any fees involved when transferring your debt. Finally, you should avoid spending or withdrawing cash on these cards as you’ll often lose the 0% period - and the fees can be expensive.
If you think a 0% balance transfer card could work for you, use an eligibility calculator first to check which ones you are likely to be approved for. MoneySavingExpert has a 0% Balance Transfer calculator which carries out a “soft credit search” and won’t be seen by lenders.
If you’re likely to be approved for one, keep in mind you may still not get the top rate if it is being advertised as "up to" a set number of months at 0%. The longest 0% balance transfer card available right now is from Sainsbury's Bank, where you could get up to 34 months interest-free.
Only those with excellent credit scores are likely to get the longest number of months advertised. However, you may not necessarily need the longest length of time to pay off your debt, so it’s best to check how long you’ll likely need. There may be shorter cards available with cheaper, or sometimes no fees.
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