An important warning for anyone with an existing credit card, loans or overdrafts.
Check if you can cut its costs now, as the Bank of England is considering making that tougher.
There has been a huge increase in personal borrowing over the last year.
The Bank of England is concerned and has warned this could lead to people defaulting and a bubble similar to that which caused the credit crunch a decade ago.It has mooted the idea of tightening lending criteria to make it more difficult for those who shouldn’t borrow to get credit.
I suspect that’d mean tougher credit scoring and affordability criteria (you can check your credit AND affordability score for free at www.creditclub.com).
This is sensible, but those who just want to cut existing debt costs may fall foul of this too. If you’ve debt it’s a sensible idea to see if you’re on the cheapest possible deal.
1. Cut credit or store card costs to 29 months 0%.
This is all about balance transfer deals, where you get a new card to repay debts on old cards for you, so you owe it instead but at a cheaper rate.
That’ll mean more of your repayments clear the actual debt, rather than just servicing the interest.
The difficulty is being accepted. Yet if you use my balance transfer eligibility checker here it shows you which top deals are most likely to accept you without any impact on your credit file.
Most cards charge a one-off fee, for transferring a balance. If you have a decent chance of many 0% cards – pick the lowest fee in the time you’re sure you can repay.
For example, Halifax is offering up to 29 months 0% fee free, while Virgin Money gives 41 months 0%, but then you pay a 3% fee.
If you’re not sure how long it’ll take you – go long for safety. The impact can be huge, as Kelly told me: “Legend. Used the eligibility calc, got 35 months 0% and shifted £11,000 from 29.9%. Shocked by the savings.” That’s £4,900 saved if it’s cleared within 35 months.
Yet the job isn’t over once you’ve done a transfer. Ensure you aim to clear the card before the 0% ends or the rates typically rise to around 20% APR.
Never miss the minimum monthly repayment or you can lose the 0% deal and don’t spend or withdraw cash on the card as it isn’t usually at the cheap rate.
2.Often in your overdraft? Shift it to 0%.
If you’re overdrawn, debit cards are debt cards too, and often they’re worse than credit cards
A constant £200 overdraft could cost you £365 per year; bust the limit and it can be worse.
a) Overdraft under £350, get paid £100 to grab a 0% overdraft. Switch to First Direct and you get a £250 0% overdraft and a free £100.
Use the free cash to reduce your overdraft and you’ve got time to pay the rest down.
You must have income of £1,000 per month paid into it (or there’s a £10 per month fee).
b) A (potentially) larger 0% overdraft for 12 months. Switch to Nationwide Flex Direct and get a year’s 0% overdraft (50p/day after).
The limit depends on your credit score, but it can be large as Matt tweeted me a while back: “@MartinSLewis Matched my old one - £1,200. Implied I could have asked for more but the point was I wanted to pay [it] off.”
c) Shift it to a special 0% money transfer card. This pays money into your bank to clear the overdraft, so you owe the card instead. Up to 41 months 0% is available for a fee.
It's complex though, so see the full guide here.
3.Already got a loan? You may be able to make it cheaper. Unlike credit cards, clear a personal loan and you could be charged an early repayment penalty of up to two months’ interest. Yet loan rates are now so low, it may be worth getting a new one to pay off the existing one including penalties.