The Money Saving Expert has shared his concerns (Image: Getty)
Martin Lewis says that people with credit card debt should “act sooner”, ahead of a key Bank of England announcement next month. Speaking as part of his BBC podcast, Lewis said the Bank of England’s next announcement on interest rates, which falls on November 5, could have “subtle” but significant ramifications.
Money-saving expert Mr Lewis was discussing balance transfers. This is “when you use one card to pay off other credit or store cards, so you owe the new one but at a far lower rate – often 0% – making you debt-free quicker, as repayments cover debt, not interest”, according to Moneysavingexpert.
However, the interest-free period usually lasts for a set period of time which might last a few months or even up to three years, and there is often a one-off fee as well. Polling from StepChange Debt Charity reveals that almost one in six (15%) of adults, equivalent to more than 8 million people, find keeping up with their credit card repayments a very or fairly large burden each month.
With inflation climbing, it is a very real possibility that interest rates will rise. This could have repercussions for people looking to clear their debt using balance transfers.
The Bank of England (Image: Getty)
Lewis said: “This is a warning for anyone who has existing debt on credit or store cards. I’m concerned the deals you can get to cut the cost are about to get worse so acting sooner is safer. I’m talking specifically about balance transfers – that’s when you get a new card that pays off debts on your existing card for you so you owe the new card instead but at 0% interest.
“Now, we’re in an upward rate environment. The predictions are that the Bank of England is going to put up UK base rates and, when that happens, the changes to credit card 0% deals are subtle. The 0% length may shorten, the one-off fee you’re charged to do a balance transfer may increase, and the go-to APR – the rate you’re charged once the 0% ends may also increase.
“But I suspect the most likely change, and the most difficult to spot, is that fewer people will be accepted for the best deals. They’re going to tighten their eligibility criteria, so they might still advertise a three-year balance transfer 0% interest-free – it sounds great, they’re available at the moment. But suddenly, when you apply, because it’s an up-to rate, not as many people are going to get three years. Some will get two, some will get one. So, you need to get your skates on.”
Once people have a balance transfer card they can move debt onto it from one or more existing cards. People can usually do this online or over the phone. They will need to tell their new lender how much they want to transfer and give them the account numbers of their old cards.
People pay a fee for each balance transfer they make. These fees are added to the amount they owe on the card. A balance transfer fee tends to be around 2-4% of the amount they’re transferring. For example, moving a balance of £5,000 could cost around £100-£200. Balance transfers have several benefits but they are not right for everyone. People should consider their individual situation and weigh up the pros and cons.
A major driving force of higher inflation last month was motor fuel prices, which rocketed by 30% in the year to September, reports The Mirror. Petrol and diesel prices have been surging since the start of the US-Israeli war with Iran which has squeezed global oil and gas supplies and driven up wholesale prices.
Living costs are expected to rise further in the months ahead as households face higher energy bills this winter. To battle against inflation, the Bank of England can raise interest rates which often leads to a drop in inflation. Martin Sartorius, lead economist for the Confederation of British Industry, said September’s inflation rise means an interest rate hike was “firmly on the table” at the Bank’s next meeting in November. He said the rate-setting committee will likely want to “guard against the risk of persistently higher headline inflation becoming embedded in future wage and price-setting behaviour”.
Paying off credit card debt can be stressful (Image: Getty)
