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Money advice: Money-saving expert Martin Lewis considers the pros and cons of borrowing
Martin Lewis
Money advice - good debt and bad debt
Don’t believe that length is everything – when it comes to 0% credit cards for spending that is. We’re in the midst of a borrowing renaissance: the longest EVER 0% card of its type has been launched, giving 15 months interest-free spending, plus reward points.
Done right, credit cards are the cheapest way to borrow: done wrong it can cost a fortune. My aim’s to help you get it right.
Is borrowing right for you?
Debt isn’t bad, bad debt is bad. ‘Neither a borrower nor a lender be’ is outdated logic these days; if you want to go to university or buy a house, debt is enforced, so we must deal with it.
Used correctly, a credit card can save, not cost, cash. Take someone who regularly attends footie matches – if they don’t have a lump sum for a season ticket, they pay more for individual tickets. Borrowing the money for the lump sum saves cash.
It may be to pay upfront for a new kitchen instead of using the shop’s finance scheme. With car insurance, if they say ‘pay monthly’, you repay the debt at a much higher rate than the cheapest credit cards.
How to borrow the right way
Now we’ve established it is possible for borrowing to be MoneySaving, let’s ensure you do it right.
- Want to cut existing credit card debt costs? If so, you need a card offering cheap balance transfers, not spending. 0% for 20mths is possible, then 17.5% representative APR after. See www.moneysavingexpert.com/balancetransfers
- Don’t get cards to supplement day-to-day spending. If the aim’s to fill the gap because you’re regularly spending more than you earn, don’t do it. That’s a massive danger signal. Instead, do a budget (free planner at www.mse.me/budgeting) and rein in your spending.
- Plan your borrowing. Even if you’re borrowing for a specific purpose, ensure you keep the debt to a minimum and plan the repayments having budgeted to check it’s affordable.
- Ensure your borrowing stays free. A 0% cent card is only interest-free for a set period of time, after which the rate rockets to the standard APR, normally 15% up. For safety’s sake pay off the debt at least a month before the deal ends, as even a single interest payment will eat away at your gains.
- Interest-free doesn’t mean no repayments. There’s still a minimum amount you have to pay back each month. Miss that and not only will you be fined, it affects your credit score and the bank will probably remove the 0% deal and shift you to its standard APR. Always set up a direct debit to repay, so you never miss this. If you want to then pay extra on top, that’s still usually allowed.
The longest 0% deals
The banks will carry out a credit search, like with any credit card. Because these are at the top of the `best buy’ tables, don’t expect to get one unless you’ve a decent credit record.
- M&S 0% for 15 months on spending
15 months is the longest 0% deal I’ve ever seen. Once that ends, it jumps to 15.9% representative APR. Representative, sadly, means only 51% of accepted cardholders must be given that rate – the other 49% can be put on much higher rates.
The card also gives points on spending which are converted into Marks and Spencer vouchers every quarter. You get the equivalent of 0.5% back on those purchases (50p per £100 of spending), and double that if you spend in M&S itself. - Tesco. 0 % for 13 months on purchases
Until M&S launched, this was the big beast with its 13 months 0% followed by 16.9% representative APR. You earn one Clubcard point per £4 spent. Each point’s worth a penny redeemed in-store or roughly 3p via Tesco’s Clubcard Rewards brochure, so that means it’s worth 25p or 75p per £100 of spending. - American Express Platinum, 6 months at 0%
Many cards, including offerings from NatWest, RBS and Barclaycard, give a year, but I’ve included this six-monther, as it gives new cardholders 5% cashback for the first three months (£5 per £100 spent) up to a max of £100 – after that the cashback’s tiered at rates up to 1.25%. So if you have a big planned purchase and can repay in six months, it’s a winner. Though beware: after six months it jumps to 19.9% representative APR.
If you need to borrow for longer, there are cards which give a low standard rate for a longer period (though not 0%). For a full run through and more best-buys, see www.moneysavingexpert.com/0percent
These cards can pay you
Now the savvy among you out there have probably worked out that as these cards lend to you at no cost, and pay rewards you can make money. The technique of profiting from plastic debt is called Stoozing, but it’s strictly only for the debt-free.
In a nutshell, you spend on the card instead of using your bank account. The unspent cash that builds up there can then be saved at high interest until it’s time to repay the card in full. You can make £100s doing this right, but be careful. Full step-by-step help is at www.mse.me/stoozing
20% off New Look
Shop at New Look online via Boots loyalty website and you get 20% off at checkout. You must shop through www.treatstreet.boots.com and enter the code NLTREAT to get the offer. Delivery's £3.95 and the offer ends 31 Mar.
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