Martin Lewis has issued an urgent warning to everyone with a credit card to check if they can cut their debt now ahead of an expected interest rate rise this week. Credit card deals could worsen if the Bank of England hikes interest rates for the seventh time in-a-row, according to the Money Saving Expert.
The base rate went up by 0.5 percentage points to 1.75% last month and money markets suggest the bank could raise rates to 2.5% as early as tomorrow (September 22) - the biggest rise in 33 years. Martin explained in the latest MoneySavingExpert newsletter that even though credit cards are not explicitly linked to the base rate, deals have been worsening over time.
This is because banks will offer less competitive deals if the cost of borrowing gets more expensive. Martin has therefore urged anyone who 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 after moving your credit card debt on to a balance transfer card to pause all interest payments for a set period of time.
Martin said: "We're already starting to hear a soft under-chant that deals may get worse quite quickly. 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 must 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 will begin to start paying the representative APR.
You need to always make your minimum repayments also otherwise you risk losing the 0% interest perk. Always check if there are any fees involved when transferring your debt also.
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 will most likely be approved for.
MoneySavingExpert has the 0% Balance Transfer Calculator which carries out a 'soft credit search' and won’t be seen by lenders. If you can potentially be approved for one, keep in mind you may still not get the top rate if it is advertised as 'up to' a set number of months at 0%.
The longest 0% balance transfer card available right now is currently from Sainsbury's Bank where you could get up to 34 months interest-free. Only those with excellent credit scores, however, are likely to get the longest number of months advertised.
You may not necessarily need the longest length of time to pay off your debt, so be sure to check how long you’ll need. There may be shorter cards available with cheaper, or sometimes no, fees.
