Archive: MoneySavingExpert's Money Tips Email

2024: Britain's becoming a debt nation again...
Martin's credit card debt masterclass
Cut EXISTING card costs to 0%, even for some with poor credit & if you need NEW borrowing, how to use cards safely & cheaply

Debt can be depressing, dangerous and debilitating. Never more so than with Christmas credit card bills about to drop through many people's doors, and UK interest rates at their highest since 2008. Yet dealing with it soonest mends it quickest.

Chilling figures just out from the Bank of England show that UK personal borrowing is growing at its fastest rate for five years - its latest figures show half a billion added on credit cards in Nov alone.

So I want to focus first on cutting the cost of any existing credit card debts that you can't clear, and, as so many people are borrowing right now, when doing it on 0% cards is best, and when it isn't.

Panicked about your debt? Jump straight to debt crisis help.

Here the key tool is a 0% balance transfer, where you get a new card and when you balance-transfer it just makes a repayment to your old credit and store card(s) for you, to hopefully clear them, then you owe it instead, but at 0%. As it's now interest-free, your repayments clear the actual debt rather than just mostly cover interest. 

Over the last year, deals have sadly got shorter & costlier, but a couple of New Year deals have launched, likely to capitalise on the January 'sort out my finances' fervour, so sorting sooner is likely better.

- To AVOID REJECTION, spend two minutes on a 0% eligibility calculator. This shows which of most top cards you can likely get, listing your bespoke acceptance odds for each. That way you can minimise applications, and protect your creditworthiness.

To show the impact, we were recently emailed (by someone who asked us to withhold their name)... "I applied for a 24mth 0% credit card thanks to your eligibility calculator. I have an overdraft and two cards with total debt over £11,000, following a divorce and house move with our two small children in 2022. I've been offered a credit limit to cover 90% of the total debt. In 2 years I'll be debt-free. Woohoo!" [Likely to be a £4,000 interest saving.]

- If you've a choice, go for the lowest fee, within a 0% time long enough to clear your debt. Most balance transfer deals charge a one-off fee as a % of the debt transferred (so 3% on £1,000 shifted adds £30 to what you owe at the start), so aim to minimise it. If you're unsure, it's not that big a deal - just play safe and go long.

Balance transfers if you've a poor credit history

If you can't get the top cards, the eligibility calculator will show alternatives, including some specifically for those with patchy credit histories. Some even accept those with past defaults or county court judgments (CCJs). There's one big thing to watch though...

The interest rate after the 0% ends will be horrid: as high as 39.9%. Compare it to your current card's interest rate. If, as is likely, your card is lower, only shift the debt you're sure you can clear within the 0% period, as you don't want it to be stuck at the higher rate after. If it's higher, shift as much debt as possible.

• Virgin Money - 16mths 0% (3% fee), 29.9% rep APR after. You must have a recent history of managing credit, even if you've had CCJs or defaults in the past, and a yearly £15,000+ personal income.
• Zopa - 6mths 0%, NO FEE, 34.9% rep APR after. If you can pay it off quickly, the fact this is no-fee is a winner. Needs min £10,000/yr personal income, plus two lines of credit, eg, phone contract/overdraft.
• Fluid (not in our eligibility calc) - 9mths 0% (3% fee), 34.9% rep APR. Can't have been declared bankrupt in last 18mths or had CCJ in past 12mths. 
• Capital One - 6mths' 0% balance transfers (3% fee), 34.9% rep APR. Must have recent history of managing credit even if you've had past CCJs or defaults.

The four Balance Transfer Golden Rules... 

1. Clear debt before the 0% ends. Pay it off or transfer again before the 0% ends or you'll pay the rep APR.
2. Never miss the minimum monthly repayment. Or you can lose the 0% rate. Set up a Direct Debit for at least the minimum, then try to make additional manual payments to clear down the debt.
3. Don't spend/withdraw cash on the card. It usually isn't at the cheap rate - and it's best not to build up more debt.
   
4. Check how long you've got to do the transfer. If you don't do it as part of the application, you've normally 30 to 90 days.

Yeah Martin, that's all well and good but in reality...

I accept my explanation makes it simple, but life often isn't. So let me run through the most common balance transfer questions I get asked:

Q. Should I apply if my best eligibility score is only 20%? Cutting debt costs is important (usually only trumped by a mortgage application) so go for it. While 20% odds are low, it means it's likely two in 10 who apply will succeed, and it could be you. And if you're rejected, barring a minor credit file application mark, you're no worse off.

Adam emailed me, after listening to one of my podcasts: "I applied to the top eligibility checker result with just an estimated 20% chance and, guess what, I was accepted with a £3,500 credit limit, two years 0%. That debt was 20% APR. I can now focus on other debts, potentially having an extra £1,300ish. You mention the link between money and mental health. Well, your advice has really lifted me."

Q. What if the credit limit I get isn't high enough for all my debt? If you get a card but the credit limit isn't big enough, the application's already on your credit file - so shift as much of your highest APR debt as you can to the new card (usually 90% of the credit limit). Then once done use our eligibility calculator to see your chances of acceptance for other providers' cards to move the rest.

Q. What if the eligibility calculator says 'no chance' for all cards? You can sometimes use existing cards to move debt where it's cheapest. For example, if one credit card charges 18% and it isn't up to the credit limit, but your 30% card is, you may be able to shift debt from the 30% to the 18% card, saving you cash. Ask your lender.

Even better, some cards also have 'existing-customer balance transfer offers' - eg, 12mths at 0%. See credit card shuffle for how it works.

I've long said debt is like fire. Used well, it's a useful tool. Used badly, it burns. And that sparks true for 0% purchase cards (also called 0% cards for new borrowing). They are the cheapest possible way to borrow for a year or two, as they're INTEREST FREE, if done right...

- Only borrow if it's planned and affordable. For a needed, budgeted for, one-off purchase (eg, replacing a non-working fridge). If in any doubt, don't. And if you do, minimise what you borrow and repay ASAP.

The big danger of 0% credit cards is easy, willy-nilly borrowing to meet ad-hoc income gaps, with only small repayments. That sounds good, but it's as dangerous as hammering dynamite, as it can lead to a debt spiral.

- To avoid rejection, spend two minutes on a 0% eligibility calculator. This shows your bespoke acceptance odds for most top cards, so you can minimise applications.

- Average credit limits are £3,000 to £5,000. Yours depends on your credit history, but they can be far less (or more).

Other ways to borrow may be better

Interest-free is unbeatable, but the risks of it going wrong are significant with 0% credit cards. So a couple of alternatives:

- Loans may be better if you don't trust yourself (or for big one-offs). While costlier than cards, a cheap loan is something you borrow a set amount for once, then have fixed monthly repayments, so it's a more financially disciplined way to borrow if you don't trust yourself.

- Buy now, pay later (BNPL). This now ubiquitous form of payment at online shops and sometimes in store isn't without use. It's easier to get, interest-free, and may be better for short-term borrowing (3mths or less). 

Yet it's still unregulated, people forget it's a debt, and is interest-free as shops cover the costs as it encourages people to buy more stuff. So generally avoid unless needed, and only do it for a one-off, planned purchase - don't make a habit of it. See our BNPL guide for more. 

i) Focus on clearing the highest-interest (APR) debt first. List all debts in APR order, and use all spare cash to clear the highest (as it's growing fastest), and just pay minimums on everything else. Once it's clear, focus on the next costliest, and so on and so on. That'll get you debt-free quicker. This includes overdrafts, especially as they're often costlier than credit cards (but doesn't include student loans).

ii) Don't look at debt in isolation. No one gets into debt for its own sake; it's to pay for other things. So you have to look across all your expenditure... go through everything you spend money on and see if you can do it cheaper or better. Our money makeover takes you through some of that.

iii) Do a budget. As well as cutting costs, get control of all your spending. The best way is to do a budget, looking across a year, to see where the cash is going. Then what really counts is how you stick to it - many who have tried swear by (or at) my piggybanking system.

iv) Boost your credit score... you may then qualify for better deals in future. See my 28 ways to boost your credit score guide.

v) Got savings? Use 'em to clear costly debts. Millions still have savings, though many are using them up. Some have an emotional attachment to them ahead of clinical financial decision-making.

Yet saving is just giving your bank a loan. So if your debts are at a higher rate than your savings earn, repaying the debt with the savings will likely add up. 

Never is this clearer than with a costly credit card, as if you clear it and that leaves you with no emergency savings, just keep the card open. That way, the worst that can happen is you use it again in an emergency - at least you saved interest meanwhile. See Pay off debt with savings?

The solutions above all involve you being in a functional relationship with your debt, ie, you can afford to repay and you just want to cut the cost. But for some a different tack is better - full help in our Debt crisis help guide, but I've three questions to help you decide which route is right...

- Do you struggle to meet minimum monthly payments?
- Is your total debt (not mortgage/student loan) over 1yr's salary?
- Do you have sleepless nights or depression/anxiety over debt?

If you answer 'yes' to any of these, forget the solutions above, and instead get free, one-to-one debt-counselling help from Citizens Advice, StepChange, National Debtline or CAP (which gives emotional support too).

They're there to help, not judge. The most common thing I hear after is: "I finally got a good night's sleep." Just go for it, read inspiring stories in our Debt-free wannabe forum, and also see our Mental Health & Debt guide.