The Bank of England has hiked interest rates to their highest level in 14 years. It comes as Martin Lewis warned anyone with a credit card who is in debt to try their best to minimise it as the new rates come into effect.
According to The Money Saving Expert, now the Bank of England has increased interest rates for the seventh consecutive time to 2.25 per cent, credit card deals have worsened, reports Manchester Evening News.
Last month, the base rate increased by 0.5 percentage points to 1.75 per cent.
Writing in the latest MoneySavingExpert newsletter, Martin explained how even though credit cards are not explicitly linked to the base rate, deals have been worsening over time.
This is because if the cost of borrowing gets more expensive, banks will offer less competitive deals.
With this in mind, Martin told how those with credit card debt could possibly save thousands of pounds by applying for a balance transfer card.
These types of cards typically offer a promotional period of 0 per cent interest.
The idea is that you move your credit card debt onto a balance transfer card so you pause all interest payments for a set period of time.
Martin said: “We’re already starting to hear a soft under-chant that deals may get worse quite quickly.
“So if you need to sort yours out, sooner is safer… Can’t afford to clear your credit card? You can’t afford not to check for a… 0 per cent balance transfer.
“A 0 per cent balance transfer is where you get a new card to repay debt on other credit or store cards for you, so you owe it instead but at 0 per cent.
“As your repayments clear the debt itself rather than cover the interest, you get debt-free much quicker (if you don’t borrow more)…”
0 per cent balance transfer cards – what you need to know
These cards need to be used responsibly, otherwise, you could end up adding to your debt.
First of all, you need to make sure you can clear the debt before your 0 per cent interest period finishes or you will start paying the representative APR.
You also need to always make your minimum repayments, otherwise you risk losing the 0 per cent interest perk, and check if there are any fees involved when transferring your debt.
Finally, you should avoid spending or withdrawing cash on these cards as you will often lose the 0 per cent period – and the fees can be expensive.
If you think a 0 per cent balance transfer card could work for you, use an eligibility calculator first to check which ones you are likely to be approved for.
MoneySavingExpert has a 0 per cent Balance Transfer calculator which carries out a “soft credit search” and will not be seen by lenders.
If you are likely to be approved for one, keep in mind you may still not get the top rate if it is being advertised as “up to” a set number of months at 0 per cent.
The longest 0 per cent balance transfer card available right now is from Sainsbury’s Bank, where you could get up to 34 months interest-free.
Only those with excellent credit scores are likely to get the longest number of months advertised.
However, you may not necessarily need the longest length of time to pay off your debt, so it is best to check how long you will likely need.
There may be shorter cards available with cheaper, or sometimes no fees.