After dedicating an entire hour to debt and how to clear it, consumer champion Martin Lewis has issued an urgent warning to anyone who uses a debit card. The money saving expert's alert claimed that the everyday financial staples are 'danger cards' if you have an overdraft on your bank account.
Martin appeared on his dedicated financial show on Tuesday, January 17. During the latest episode of the popular ITV programme - The Martin Lewis Money Show Live - Martin gave several pieces of advice including tips about clearing debts in a particular order and using balance transfers to transfer expensive debts onto 0% interest credit cards.
According to Nottinghamshire Live sister publication Yorkshire Live, the Money Saving Expert set out how overdrafts - the ability to 'go overdrawn' in a bank account and repay the bank the money later, for example to make sure a bill or extra spending isn't stopped by the bank due to lack of funds - is actually the most expensive way to go about borrowing money.
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Mr Lewis explained that the average bank loan is under 8% APR (the cost of borrowing rate); and the average credit card rate is 19% APR. He said: "'Credit cards are horrible. Debit cards are great'. Not true.
"If you're overdrawn, your debit card is a debt card, and most consumer overdrafts are now 40%, double a high street credit card, which means debit cards are now danger cards if you're overdrawn.
"Now the first thing if you're overdrawn is to check your eligibility for a -% overdraft and to what amount.
"People also ask me, can I shift my overdraft onto a 0% card? The answer is yes, but only a few specialist cards, it's called a money transfer.
"with a money transfer card you apply for a new card and it pays the money into the bank account for you so you can get rid of your overdraft, you now owe the card.
"It's best for large overdrafts, you need a decent credit history.
"With your overdraft, treat it like every other debt. Try to shift your direct debits to just before payday, so the longer you're overdrawn, the bigger your interest charges. So if you can move it to just before payday, you won't be in debt for as long and it should reduce the interest."
Martin added: "If you have multiple debts, the rules change. I want you to list all your debts in order of interest rates, highest first. Then you take all the spare cash you possibly have and you pay the highest interest rate ignoring the others.
"When this one goes, you then focus on clearing the next-highest interest rate. Once that goes, you clear the next and the next and so on. It's known as snowballing and it means you get rid of your debts more quickly."
He also advised people in serious trouble to ask for advice saying contact services like StepChange if in real difficulty.
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