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Martin's debt costs masterclass: Can't afford to clear your debt? Then you can't afford not to move it to up to 35mths at 0%, saving £1,000s
Debt is often depressing, dangerous and debilitating. When I used to do TV money makeovers, one of the first things I'd do was total someone's debt. Often it caused them at best a sharp intake of breath, and at worst tears.
However, while they felt things had just got worse, I explained actually things had just got better. Leave debt to fester and it rots - interest keeps accruing and things get worse. Stopping new borrowing and tackling it head on means you can reduce the cost and ultimately the debt.
So as it's January, we're in a cost of living crunch, and New Year debt bills are being received by millions, it's time for my annual interest-cutting masterclass. My aim's to show you how to save £100s or even £1,000s by reducing the interest you're paying.
1. CREDIT CARD DEBT: Balance-transfer it for up to 35 months at 0% (the longest debt-shift deal since 2018)
I touched on this earlier this month, but it's such an easy way for many to save, so no apology for the repeat - especially as deals may be pulled any moment. A 0% Balance Transfer is where you get a new card to repay debt on old cards, so you owe it instead but at 0%. Your repayments then clear the debt rather than just mostly cover the interest.
John emailed: "Used your site three times to gradually get all my credit card debt to 0% cards. It's now saving me £190/mth in interest, which I'm using to pay off the debt as quickly as possible. Many thanks."
- Don't do hit & hope applications for new cards. That puts a negative mark on your credit file. Instead use our Eligibility Calculator to see your acceptance odds for top cards without affecting your future ability to get credit to home in on the best to apply for.
- Go for the lowest fee (including cashback) in the time you're sure you can repay. Unsure? Play safe and go long. And right now the longest deal we've seen in a good few years is available...
Top newbies' 0% balance transfers
| Card | Key 0% info | How good is it? |
Virgin Money Best: check acceptance odds (pre-approval available), or apply* direct. |
- 35mths 0% - 2.94% fee - 21.9% rep APR after 0% ends |
Longest 0% balance transfer by far. The standout if you need the longest time to clear your debts, better still it's not an 'up to', so all accepted get the full time at 0% |
HSBC Best: check acceptance odds, or apply* direct |
- 31mths 0% - 2.7% fee (min £5) - £25 cashback if shifting £100+ in first 60 days. - 21.9% rep APR after 0% ends |
Long 0%, fee offset by cashback. All accepted get 31mths 0%. Yet if you can repay within the time, the fee's lower than above and there's cashback, in fact transfer under £900ish and the cashback's bigger than the fee cost, so you're up |
Sainsbury's Bank Best: check acceptance odds (pre-approval available), or apply* direct |
- Up to 21mths 0% - No fee - 20.9% rep APR after 0% ends |
Longest no-fee 0%, so good if you can repay quicker, but an 'up to'. You could be accepted and offered just 17mths or 13mths at 0%, (unless you're pre-approved, see link on the left) |
HSBC Best: check acceptance odds, or apply* direct |
- 20mths 0% - No fee - 21.9% rep APR after 0% ends |
Longest definite 0% no-fee card. Similar to Sainsbury's, but all accepted get the full time at 0%, so if our eligibility calculator shows you've good odds, it's a strong contender |
Always follow the Balance Transfer Golden Rules:
- Never miss your min monthly repayment, or you can lose the 0%.
- Clear the card before the 0% ends, or you pay the higher APR.
- Don't spend/withdraw cash. It usually isn't at the cheap rate.
- Usually you must transfer within 1-3 months to get the 0% deal - check.
- You can't transfer between two cards from the same banking group.
Full help and info in Best Balance Transfers (and see APR examples).
2. STORE CARDS: Shift these to 0% just like credit cards
Store cards are just credit cards you only use in one store chain, but usually with far costlier interest, eg, New Look is 28.9% rep APR, Argos 34.9%. In the old days I used to call them the devil's debt, but that was before payday loans came along. If you've got them, you can usually balance-transfer store card debt too, so just follow the help above.
3. OVERDRAFTS: DANGER 40% rates are now standard - yet you can earn £130 switching to a 0% overdraft
Overdrafts really scare me. I had a caller on This Morning recently who had paid off card & loan debt from her bank account, so was now heavily overdrawn. Yet overdrafts are the bigger danger. Almost all major banks now charge about 40% for overdrafts, double the interest of many high street credit cards.
That means the right thing to do for most is to pay the minimum on the credit card, to reduce the overdraft, not vice versa. Do see our 10 overdraft cost-cutting tips, but here's the key info:
A) Can you switch to a 0% overdraft? Two banks currently offer 0% overdrafts - and they'll even pay you to switch to them.
- First Direct. Switchers get a free £130 and many get an ongoing £250 0% overdraft* (40% EAR above that). So if your borrowing's under £350ish, the £130 will clear some debt and the rest is interest-free. See First Direct's Eligibility Criteria first to see who can get it.
- Nationwide FlexDirect. Switchers get a free £100+ and many get a year's 0% overdraft, the amount of which depends on a credit assessment. For some it can be larger than First Direct - so use its eligibility tool to get an indication before you apply. Only use this as a route to clear the overdraft within a year, or it rockets to 40% EAR. See Nationwide's Eligibility Criteria first to see who can get it.
B) Or use a 0% money transfer credit card. For larger overdrafts, a few specialist cards also allow 0% Money Transfers for up to 18mths - where for a small fee the card pays cash directly into your bank account, clearing your overdraft, so you owe it instead.
C) Treat overdraft borrowing like any other debt - repay it. Try and repay a set amount each month, eg, £50 (so you should start the next month with a £50 smaller overdraft than the one before).
4. PERSONAL LOANS: Can you slash interest to 2.8%?
Loans are (relatively) dirt cheap right now, but with interest rate rises that may change, so a simple question you should ask is - can you get a new loan to clear your existing one and pay less?
Yet the answer is more complex, as it's not just about finding a cheaper APR, as there can be a couple of month's early repayment fees. Full help in Cut Existing Loan Costs, but here's a brief A, B and C:
A) Ask your current lender for a 'settlement figure'. For instance, how much it'll cost to clear your current loan, including any early repayment costs (which tells you how big a new loan you'll need to get to clear it).
B) Find the cheapest loan for the 'settlement figure' and if you can get it. Our Loans Eligibility Calculator shows your odds of acceptance for many loans - it's really worth checking that before applying. Full current cheapest rates are in Cheapest Loans (APR examples), but in brief...
- £1,000 - £3k: Hitachi* 9.8% rep APR (Card Loans can be cheaper)
- £3,000 - £5k: Hitachi* 7.9% rep APR (Card Loans can be cheaper)
- £5,000 - £7.5k: Sainsbury's* 3.3% rep APR (Nectar cardholders)
- £7,500 - £15k: M&S*, Cahoot*, Santander* & three more are 2.8% rep APR
Yet do be warned all these loan rates are 'representative APR', meaning sadly only 51% of accepted customers need get that rate. Though via our Eligibility Calculator we do have a few cheap lenders that now offer guaranteed rates.
C) Find out if a new loan's cheaper than your current one. Multiply your monthly repayments by how many months you have left (ask the lender if you don't know) to find how much you'll pay if you stick. Or just plug the figures in to our Loan Switch Calculator which does it all for you.
It worked twice for MoneySaver Lisa, who emailed: "Last year I needed to get a car and reluctantly took a loan at a whopping 18.9%. I read your Feb newsletter & was able to secure a new loan at 7.9% and over 4 years. As if that wasn't good enough, I just tried again and have now got another new loan at 2.9%. Thank you, thank you, thank you."
5. BUY NOW, PAY LATER: Interest-free maybe, but it's still debt, so be careful, it's unregulated (for now)
Buy now, pay later (BNPL) is interest-free, so there are no costs to be cut. Used right, it's an easy way to spread payments if needed.
Yet this is a warning. Klarna, Clearpay, Laybuy and other BNPL firms are now a near-ubiquitous way to pay at many online retailers, offering to spread the cost over a few months.
Wrongly, this often is not made to feel like a debt. But it is a DEBT, and like all debts, you should only do it if you absolutely need it, and can afford to repay. These firms make money because they're so good at tweaking our spending nipples to make us want to buy even more.
MSE and I campaigned for BNPL to be regulated, and thankfully it's happening, though too slowly, sometime later in 2022. You'll have rights then to take them to the ombudsman if things go wrong; YOU DON'T YET. Full info on how the schemes work in Buy Now, Pay Later.
6. IT AIN'T just WHAT YOU DO, IT'S THE WAY THAT YOU DO IT
The much-revered sages of Bananarama (too young to know 'em? Do a search) knew what they were talking about. Cheap deals help, but whether you get one or not, always aim to repay as much as you can, as quickly as you can, without damaging your financial stability. A few tips:
- Focus on repaying the highest-interest debt first. It's not about the amount, it's the APR that counts, as that means it's growing fastest. So list all debts in APR order, and use all spare cash to clear the highest and just pay minimums on everything else. Once it's clear, focus on the next costliest. For avoidance of doubt, overdrafts are a debt and should therefore be included (but don't include student loans).
- Got savings? Use 'em to clear costly debts. Many people are emotionally attached to having savings, but in practice that's just you giving your bank a loan - usually at a far lower rate than it charges when you borrow from it.
So if the debt interest rate is higher than you earn saving (it usually is), repay the debt with the savings as long as there are no early payment penalties.
While it's worth holding back 3-6mths' worth of bills in an emergency savings fund with most products, with credit cards, as they're costly and have an open facility, you could use your emergency fund to clear it. Then if an emergency happens, borrow back so you're no worse off. Full help in Pay Off Debt with Savings?
- Do a budget and manage your money. Get control of your spending - do a Budget to see where the cash is going. What really counts is how you stick to it - many who've tried swear by (or at) my Piggybanking System.
- Boost your credit score. You'll be eligible for better debt cost-cutting deals in future. See our 27 Ways to Boost your Credit Score guide.
7. MORTGAGES, CAR FINANCE, and STUDENT LOANS
My focus today is the main unsecured debt products, but in brief, let me zip through where to get info on a few of the others:
- Mortgage deals. They're still historically very cheap even after the small interest rate rise in December, so everyone should check if you can cut the cost of theirs, before rates (may) rise further. There's a huge amount of help in our Mortgage MoneySaving section.
- Car finance. The cheapest way to borrow to buy a car is usually with a Cheap Personal Loan. However, specialised car finance packages can be more flexible. Our Car Finance guides have full pros and cons of each.
- Student loans. In practice, these work more like a tax than a loan. Most people shouldn't be looking to overpay (even with higher headline interest rates coming). See Should I overpay my Student Loan?
In debt crisis? Get free debt help
The solutions above involve still being in a functional relationship with your debt - being able to afford them, just cutting the cost. If not, then you need a different tack. I've three questions to ask you:
- Do you struggle to meet minimum monthly payments?
- Is your total debt (excluding mortgage/student loan) over a year's salary?
- Do you have sleepless nights or depression/anxiety over debt?
If you answer yes to any of these, forget the solutions above, instead get free, one-to-one debt counselling help from Citizens Advice, StepChange or National Debtline. And if you need emotional support, try CAP.
They're there to help, not judge. The most common thing we hear after is: "I finally got a good night's sleep." And don't feel alone, there's no stigma, you can sort this. Read inspiring stories in our Debt-Free Wannabe forum, and see my Mental Health and Debt and our Debt Crisis Help guides.
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