MoneySavingExpert.com Feature by Martin Lewis, MoneySavingExpert Debt Recovery
This is a golden time for those in debt. While that may seem a strange thing to say, the best EVER deals for cutting loan, store or credit card costs are now on the market. So if you’ve existing debts, a little bit of action could save you £100s or £1,000s.
The aim is to cut the interest rate you pay, so more of your repayments clear the debt rather than servicing the interest, so you’re debt-free far quicker.
1. Stop borrowing. Borrowing more just makes the problem costlier and longer-lived. You can’t borrow your way out of debt. The tips below are about getting new products, not borrowing more.
2. Credit & Store Card Debt: Shift to 31mths 0%.
If you’ve debts on cards, do a balance transfer. This is where you ask a new card to pay off debts on other cards, so you owe it instead, hopefully at a cheaper rate.
To get a card, you must pass a credit score. Usually the only way to find out is to apply, which marks your file. To get round that, find which card’s most likely to accept you with my free Eligibility Checker at
www.mse.me/ eligibility
Follow the balance transfer golden rules: 1. Always repay at least the set monthly minimum, or you lose special rates.
2. Always plan to shift the debt again or fully repay before the 0% ends, or these cards’ rates jump to 18.9% and 17.9% representative APR.
3. Don’t spend on these cards – it’s usually not at the same cheap rate.
58 3. LOAN DEBT: Can you cut the cost?
This is more difficult, as most old loans charge up to two months’ interest to repay early, which needs factoring in.
It’s worth trying if you can get a much lower APR loan (ie, more than a fifth off) and have a while left to repay – especially if your credit score’s improved since getting the loan.
4. OVERDRAFTS/CATALOGUES: Shift to 0%. If you’ve a costly overdraft or need to put money in a bank account to pay off catalogue debts, there’s a way to use a credit card for this.
A few balance transfer cards let newbies ‘money transfer’ cash into your bank account, so you then owe the card instead.
You could, of course, find a 0% overdraft. Both First Direct and Nationwide offer this if you switch to them, but the amounts offered are usually limited.
5. Don’t repay all debts equally attack the highest APR first.
Once your debts are as cheap as possible, list them all, including overdrafts, in order of APR. Then focus every penny on clearing the highest APR one as it grows fastest, just paying the minimum on the others. Once that’s clear, move to the next highest.
The more you pay off, the better. If you just stick
to minimum repayments, you’ll take
years or decades to be debt-free (they’re designed so you just clear the interest). The exception to the ‘highest APR first’ rule is loans with penalties for overpaying early.
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