Martin Lewis shares 'crucial weapon' in cutting your credit card debt

The Independent

Martin Lewis shares 'crucial weapon' in cutting your credit card debtSource:ITV

Transcript

00:00OK, so what is a 0% balance transfer?

00:02This is for cutting the cost of existing debts.

00:05It's absolutely the crucial weapon.

00:07I want to really break it down for you.

00:08Let's imagine you have 2,300 pounds worth of debt,

00:12one on a stale card and one on a rotten card,

00:14both at relatively high rates of interest.

00:16So what do you do?

00:17Well, you apply for a new card that's

00:19got a specific, this is what we're talking about,

00:21a specific balance transfer deal to shift the debt.

00:24Here we go.

00:24The new card, we'll call it the Mark card, hey, why not,

00:27is 31 months, 0%.

00:30You've got a 2,000 pound credit limit.

00:32So what do you do?

00:33Well, the first thing is you look

00:34at the most expensive debt.

00:35That's the one growing quickest.

00:36That's the one you want to get rid of.

00:38And you say, please pay the debt off that one.

00:41And that's what a balance transfer is.

00:43There we go.

00:44The new card pays off the debt on the old card,

00:47so you now no longer owe it.

00:48Its debt's gone down to 0 pounds.

00:51And you now owe 1,400 pounds, but at 0% for 31 months.

00:55But you've got a credit limit of two grand.

00:57Now, in terms of balance transfers,

00:59they only let you balance transfer 90% of the credit

01:01limit.

01:02So that's 1,800 pounds in this case.

01:04So we've got 400 pounds left.

01:06Well, you may as well do it again.

01:07There we go.

01:09Pay off the stale card.

01:11Now you've got 1,800 pounds worth of debt here,

01:14and only 500 pounds worth of debt on the stale card.

01:16So if we think of it roughly, your average before

01:19was around 23%, 24% APR on 2,300 pound debt,

01:24about 600 pounds a year interest you were paying.

01:26Now, that's all interest free.

01:29You've got only 500 quid debt on there.

01:31So that's what?

01:31Just over 100 quid.

01:33That's 500 pounds of interest saved,

01:35which means far more of your money

01:37is clearing the actual debt rather than just

01:40paying the interest.

01:41And that gets you debt free quicker.

01:43That's why balance transfers are so important.

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