Martin Lewis has warned that debit cards linked to an overdraft on a current account can be 'danger cards', potentially costing more than credit cards due to overdraft charges. The Money Saving Expert issued the warning on his ITV show, the Martin Lewis Money Show Live, back in 2024.
Overdraft rates far higher than credit cards
Lewis explained that the average bank loan carries an APR of less than 8%, while the average credit card rate is around 19% APR. However, most consumer overdrafts now carry a 40% APR, double that of a typical high street credit card.
He said: "'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."
Advice for managing overdrafts
Lewis advised those who are overdrawn to first check their eligibility for a 0% overdraft. He also explained that it is possible to shift an overdraft onto a 0% credit card using a money transfer card. "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."
He suggested moving direct debits to just before payday to reduce the time spent overdrawn: "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."
Snowballing multiple debts
For those with multiple debts, Lewis recommended listing debts in order of interest rates, highest first, and paying off the highest-rate debt first with all spare cash. "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."
He also urged those in serious financial difficulty to contact services like StepChange for help.
