Martin Lewis: If you can't afford to clear your credit card in full and you're paying interest, you SHOULD try for a 0% balance transfer
Can't afford to repay your credit card in full? If you're paying interest you should try for a 0% balance transfer, said MoneySavingExpert.com founder Martin Lewis in the latest episode of ITV's The Martin Lewis Money Show. Watch Martin explain below, plus see our Credit Card Eligibility Calculator and Best 0% Balance Transfers guide to find the top deal, and see our Debt Problems info if you're struggling.
ITV's The Martin Lewis Money Show Live - Thursday 27 January 2022
The clip above has been taken from The Martin Lewis Money Show on Thursday 27 January 2022, with the permission of ITV Studios. All rights reserved. You can turn on subtitles by selecting the keyboard image at the bottom right of the video. You can also watch the full episode on the ITV Hub.
Here's a full transcript of Martin's thoughts on credit card debts
"If you cannot afford to clear your credit card in full and you are paying interest, you CANNOT afford not to try and check if you can get a 0% balance transfer.
"Now, that's where you get a new card that pays off debts on existing cards for you. So you owe the new card the money but at 0%. Now, again, use an eligibility calculator - don't just apply - so you can home in on the card that is most likely to accept you without impacting your credit file.
"You want to go for the one with the lowest fee within the 0% length that you're sure you can repay. So if you can repay quickly, HSBC is offering a card with 20 months at 0% with no fee, while Sainsbury's is offering up to 21 months, no fee. 'Up to' means some accepted customers may get less, so if you've got a pretty decent chance on an eligibility calculator with HSBC, I'd probably go for that.
"If you need longer to pay, the longest card is this one from Virgin Money, offering 35 months at 0%, which is the longest I've seen since 2018. The deal ends [at 11.59pm] on Wednesday 2 February, so act quick. It has around a 3% fee, which means that when you shift it has a one off fee of around £30 per £1,000 of debt.
"HSBC is four months shorter, the fee slightly less, but it's currently giving you £25 cashback if you shift over £100.
"Now for bigger transfers, I'd go for the Virgin Money one. But if you're shifting, say, less than £1,000, the cashback is often bigger than the fee, so it's [HSBC] actually better than no fee. It's actually paying you to shift the debt. So that's the order I'd look up but go and do it through an eligibility calculator."
'Never miss your minimum repayments'
"And golden rules here: never miss your minimum repayments or the rate can jump up to 20% APR, and make sure you clear the debt within the 0% period or the same thing can happen. Do not use these to spend, do not use these for cash withdrawals. Just use it for the balance transfer, then put it away.
"Next lesson here, it ain't what you do, it's the way that you do it. This is about an important technique called snowballing.
"What you should do, if you've got more than one debt, is line them all up in order of the highest interest rate, from high to low and then shift all your spare cash towards paying the highest interest rate debt and just pay the minimum payment on all the others. Don't pay them equally, don't pay your biggest debt, pay the highest APR first because that's the one growing quickest. That's the most expensive.
"Once you've cleared that (the highest interest rate debt), then pay off the second and so on, and that snowballs up the game. It's a really important technique to use when clearing your debts."
'If you have savings, use them to clear costly debts'
"Look, of course, if you borrow more, it's going to make things worse. So try and avoid that. Do a budget and try and stick to it. Have separate spending jars so you can manage and control your expenditure.
"If you've got any savings, use them to clear costly debts - savings interest is a fraction of debt costs. So let's say you've got a 20% credit card, use your savings to pay it off. If you had an emergency, you needed money, don't get rid of the card, borrow back on the credit card.
"In the meantime, at least you've saved by clearing that high interest you're paying - if it's 0% you don't need to do this but if it's high interest you do."
'If you're in debt crisis, forget everything I've said and get help'
"Now, really important for you (and even if you're not in debt) let's stop being embarrassed when we've got financial problems. You don't need to tell the details but just say I'm struggling a bit at the moment, I can't afford to go out with you, I can't afford to do that.
"And the rest of us when we hear that, let's be accepting and considerate and not put peer pressure on other people to spend. It's really important with the situation we're in, in this country at the moment. Please be financially considerate.
"Last bit of this, are you in debt crisis? Three questions: can you meet your minimum monthly repayments? If you can't, it's a problem. Is your total debt over a year's worth of income, not counting mortgage or student loans? Or you're not sleeping and you feeling depressed or anxious because of your debts? If you've answered yes to any of those, forget everything I've said, I'm talking about playing the system.
"You need to get one-on-one debt help. You need to opt out of the system and close the door on what's going on. Citizens Advice, StepChange, National Debtline, or if you're struggling emotionally, Christians Against Poverty, that's where you need to go."
Below are the contact details for each organisation Martin highlighted - you can also see our Debt Problems guide for further help:
- Citizens Advice: You can find your local branch by using the postcode finder on its website, or you can call 0800 144 8848 if you're in England, 0131 550 1000 if you're in Scotland, or 0800 702 2020 if you're in Wales. If you're in Northern Ireland, you can call 0800 915 4604 for the independent advice network.
- StepChange: You can either get in touch via its webchat service or by calling 0800 138 1111.
- National Debtline: You can call 0808 808 4000 or use its website service to speak to an adviser.
- Christians Against Poverty: You can get in touch by calling 0800 328 0006.
MSE weekly email
FREE weekly MoneySaving email
For all the latest deals, guides and loopholes simply sign up today – it's spam-free!