Martin Lewis has issued an urgent warning to regular debit card users since the interest rate on consumer overdrafts is now 40%, “double” that of a high street credit card.
The saving guru stated on the most recent episode of The Martin Lewis Money Show Live that overdrafts are the most expensive way to borrow money due to their higher interest rates than standard credit cards.
An overdraft allows you to borrow money through your bank account by depositing funds into your account after it has hit zero.
Mr. Lewis stated, “Most consumer overdrafts are now 40%, which is double that of a high-street credit card, making debit cards dangerous if you’re overdrawn.”
In the most recent episode of The Martin Lewis Money Show Live, the show’s namesake discussed clearing debt (file image)
Instead of using an overdraft, he advises clients to use balance transfers to transfer pricey bills to credit cards with 0% interest.
In addition, he advised anyone in dire straits to contact debt counseling services such as StepChange.
The expert said that the average APR for bank loans is less than 8%, whereas the average APR for credit cards is 19%.
‘Now, if you’re overdrawn, the first step is to determine your eligibility for a 0% overdraft and to what amount,’ he added.
People sometimes wonder if they may transfer their overdraft to a 0% card. Yes, but only a handful of specialised cards. It is known as a money transfer.
“With a money transfer card, you apply for a new card, and it pays the money into your bank account so you can eliminate your overdraft; however, you now owe money on the card.”
For big overdrafts, a solid credit history is required.
He said that if customers had to use their overdraft, they should plan direct debits right before payday since “the longer you’re overdrawn, the higher your interest charges”; therefore, merely being in the overdraft for one day reduces interest.
However, according to the financial expert, these regulations vary for persons with many loans.
In this instance, he encouraged individuals to list their debts in ascending interest rate order, beginning with the highest rate.
He stated, “Then you take all of your extra cash and pay the highest interest rate, disregarding the others.”
“Once this one is paid off, you’ll focus on the next-highest interest rate.
Once one is eliminated, you proceed to the next, and so on. It is called as snowballing, and it allows you to pay off your obligations faster.
»Martin Lewis gives urgent warning to regular debit users as consumer overdrafts reach 40%«