“‘Credit cards are horrible. Debit cards are great’ – not true”
Martin Lewis has spoken about the “danger” of having an overdraft on a debit card, warning that they can become “danger cards” if you’re not careful.
The personal finance expert said high overdraft rates mean your debit card can easily become a “debt card.”
A new series of ‘The Martin Lewis Money Show Live’ aired on ITV1 on Tuesday (January 17), with the first show dedicated to issues around debt. Lewis gave several pieces of advice around clearing debts including using balance transfers to shift expensive debts onto 0% interest credit cards.
Martin also issued a warning over people using debit cards – especially if they’re attached to an overdraft, reports YorkshireLive.
If you're in debt crisis, Martin's three questions can help you work out if you should contact a free, not-for-profit debt advice charity.
He also shares helpline information & ways to reach out, via phone or online⬇️
All info correct at time of broadcast#MartinLewis pic.twitter.com/fCaVH7MEre
— The Martin Lewis Money Show Live (@itvMLshow) January 19, 2023
The Money Saving Expert explained how overdrafts – the ability to ‘go overdrawn’ in a bank account and repay the bank the money later – are actually the most expensive way to go about borrowing money. He pointed out that the average bank loan is under 8 percent APR (the cost of borrowing rate); and the average credit card rate is 19 percent APR.
Martin added: “‘Credit cards are horrible. Debit cards are great’ – not true. If you’re overdrawn, your debit card is a debt card, and most consumer overdrafts are now 40%, double a high street credit card. Which means debit cards are now danger cards if you’re overdrawn.
“Now the first thing if you’re overdrawn is to check your eligibility for a -% overdraft and to what amount. People also ask me, can I shift my overdraft onto a 0% card? The answer is yes, but only a few specialist cards, it’s called a money transfer.
“With a money transfer card you apply for a new card and it pays the money into the bank account for you so you can get rid of your overdraft, you now owe the card. It’s best for large overdrafts, you need a decent credit history.
“With your overdraft, treat it like every other debt. Try to shift your direct debits to just before payday, so the longer you’re overdrawn, the bigger your interest charges. So if you can move it to just before payday, you won’t be in debt for as long and it should reduce the interest.”
Martin added: “If you have multiple debts, the rules change. I want you to list all your debts in order of interest rates, highest first. Then you take all the spare cash you possibly have and you pay the highest interest rate ignoring the others.
“When this one goes, you then focus on clearing the next-highest interest rate. Once that goes, you clear the next and the next and so on. It’s known as snowballing and it means you get rid of your debts more quickly.”
In the show, Lewis also advised people in serious trouble with debt to contact services like StepChange.
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