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Martin Lewis shared an important tip to cut credit card interest down to zero to help people pay back just what they owe.
The Money Saving Expert founder took to his Money Show this evening to tackle the topic of credit scoring and managing debt.
Addressing viewers, Mr Lewis said: “The key weapon if you have credit card debt is a balance transfer.
“People do get confused, so let me just take this back to basics. Imagine you’ve got two not-very-nice cards.”
He used an example of having two credit cards, one with a 19.9 percent APR and another with a 21.9 percent APR. One has £700 debt, the other has £1,100 debt.
Explaining how a balance transfer card can help, he said: “You need something to sort you out, so you apply for [a balance transfer card] at zero percent for two years with a £2,000 credit limit.
“This is what happens. You ask the [balance transfer card] to do a balance transfer. In practice, it then pays off the debts on the other cards for you.
“So those debts are gone. Those cards are now empty. Instead, you owe [the balance transfer] card the £1,834.
“But now, instead of an average rate of around 20 percent a year, you’re not paying any interest on it at all, and the practical point on that is pretty simple.
“All of your repayments towards the card are clearing what you actually owe, rather than just servicing the interest and going towards the profit of the credit card company.
“That is a balanced transfer in a nutshell.”
However, Mr Lewis pointed out that the balance transfer market is getting “a little bit more difficult” with zero percent interest time spans reducing.
Additionally, the fees people must pay to transfer their credit card balances over to the new card are increasing, which is something people should watch out for.
He said: “There’s a one-off balance transfer fee that you pay a percentage of the debt you shift. So let’s say it’s a three percent fee, – that’s £30 you pay for every £1,000 you shift.
“Fees have got a bit bigger. You’re not going to get the best deals anymore.”
However, he noted: “But it’s still absolutely worth doing and the hope is, if interest rates do drop during this year, as predictions are now moving towards it, these may get a little better in six months.
“But if you’re paying interest on your debt, you shouldn’t wait for this to get on with it.”
The Martin Lewis Money Show airs every Tuesday on ITV and ITVX at 8pm.