MILLIONS of borrowers could clear their debts sooner by switching their credit cards and personal loans, new research suggests.
An estimated 16million borrowers would qualify for a card with an interest-free period, potentially saving hundreds of pounds a year, says credit reference agency Experian.
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And a further six million people with personal loans could qualify for a deal with a lower rate, the firm found.
Here, Esther Shaw explains how to find out if you could switch and save without damaging your credit score.
Balancing act
RISING costs have pushed up the amount of money people are borrowing on credit cards, the latest Bank of England figures show.
But two in three borrowers could potentially cut costs or get back in the black sooner by moving their debt on to a new card, Experian found.
Balance transfer cards typically give you a specific set period in which no interest is charged on your debt.
During that time, when you make repayments, every penny reduces your debt instead of being eaten up by the cost of interest.
But it’s vital that you always make at least the minimum monthly payments or you risk losing the zero per cent window.
Never use a balance transfer card to withdraw cash or to spend money, as you are likely to get charged interest.
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Make sure you have a plan to clear your debts during the interest-free window, because costs could soar when it ends.
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Best offers
FOR the best balance transfer deals, you need a top-notch credit score.
But even if you’ve got a lower score you could still save a packet by switching to a card with a shorter interest-free period.
To find out which deals you are most likely to qualify for without damaging your score, use an eligibility checker like the one on moneysavingexpert.com, which also covers personal loans.
The longest balance transfer deal is from MBNA, offering a huge 31 months at zero per cent.
You’ll need to carefully weigh up the length of the deal against the transfer fee, which is a percentage of the balance that you shift on to the card.
With the MBNA card, the fee is 3.49 per cent.
But Barclaycard and NatWest are both offering deals that are almost as long, at up to 30 months, with lower fees at just under three per cent.
It’s normally best to pick the deal with the lowest fee and an interest-free period long enough to clear your debt.
For borrowers with a lower credit score, Virgin Money is offering 16 months at zero per cent with a three per cent fee.
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Crunching the numbers
SAVINGS from switching can be substantial.
If you owed £3,000 on a credit card with a typical interest rate of 23 per cent and paid £250 a month, you’d be charged £395 in interest over the one year and two months it would take to clear the balance.
If you moved it on to a zero per cent deal, with a typical three per cent transfer fee, you’d clear the debt in a year and pay £90 for the fee.
That means you’d save £305 by switching.
But Matt Sanders from gocompare.com said: “Before making a choice, be sure to check what the rate will be after the interest-free period.
“Also, see whether the card offers a zero per cent deal on purchases, and if annual fees or late payment penalties apply.”
When to consider a loan
A LOW-RATE personal loan could be a better option if you’ve got multiple cards or other debts you are trying to pay off.
In this case the credit limit on a zero per cent balance transfer card might not cover your needs.
Bear in mind that with a loan, you’re likely to have higher monthly costs as you need to clear the full balance by the end of the agreement.
Experian estimates that around 85 per cent of borrowers with existing loans could save by switching.
But you will probably need to pay an early repayment charge to your current lender so be sure to weigh up the full costs carefully.
Some of the lowest rates currently on offer for a loan of £7,500 over five years are from Tesco Bank and M&S Bank, both at 4.9 per cent, according to moneyfactscompare.co.uk.
But for both credit card and personal loan deals advertised as “representative”, there is no guarantee you will qualify for the lower headline rate.
Lenders only need to offer these rates to 51 per cent of applicants.
If you are really struggling to get your debts under control, a loan or credit card might not be the best option, so seek free advice from a charity such as stepchange.org.uk or nationaldebtline.org.
‘It’s been a massive help’
CHILDREN’S author Josie Dom cleared £4,000 in debts with some savvy credit card shuffling.
The 52-year-old, who is the writer of Lum And The Animalympics, moved the balance from Barclaycard to the cards with AA and Halifax in order to give her several years interest-free to pay it all back.
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Josie from Colchester, Essex, said: “It’s been a massive help at a time when costs are on the up, and household budgets are being stretched in all directions.”
Women miss out on pension back-payments
HUNDREDS of thousands of women who were underpaid the state pension for 15 years or more won’t be told they missed out, the Government admits.
The process is underway to identify around 230,000 pensioners – mainly female – to repay sums averaging nearly £9,000 after they were underpaid due to admin errors.
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But another group of women estimated to be in the “low hundreds of thousands” also missed out and won’t be contacted.
Many of the people that the Government has agreed to contact include wives with husbands under 80 and widows.
They stand to get back-payments as the Government accepts that it should have automatically increased their pension payments when their husband turned 65.
The second group of mainly older women won’t be contacted because the Government argues the rules at the time meant it was their responsibility to claim any extra pension they were due.
These women’s husbands are over 80 and they should have received a boost to their state pension when their spouses turned 65.
But many didn’t realise that they needed to fill out a form and claim.
They should have received at least £85 a week – or 60 per cent of their husband’s basic pension – but got less than this for at least 15 years.
Some are still not getting the amount they are entitled to.
Any women who realise they are being underpaid and contact the Pension Service will only have their payments backdated for a year.
Former pensions minister Steve Webb, who is now a partner at financial services firm LCP, said: “It’s shocking that the Government knows that hundreds of thousands of older married women could be entitled to a higher pension but has done nothing to make them aware in the 15 years or more since their husband retired.”
To check if you are one of the women affected, see Steve’s guide at lcp.uk.com/underpaid.
A Department for Work and Pensions spokesman said: “Our priority is ensuring pensioners receive the financial support to which they are entitled.
“As upheld by a court last year, married women whose husbands reached state pension age after them, but before March 17, 2008, are required by law to make a claim for an uplift to their state pension.”
