Martin Lewis has urged people with credit or store card debt to act sooner, ahead of the Bank of England's next interest rate announcement on November 5. Speaking on his BBC podcast, the money-saving expert said the announcement could have 'subtle' but significant ramifications for those looking to manage their debt.
Mr Lewis was discussing balance transfers, which involve using one card to pay off other credit or store cards, so the borrower owes the new card at a far lower rate - often 0 per cent - making them debt-free quicker, as repayments cover debt rather than interest. However, the interest-free period usually lasts for a set time, which might be a few months or up to three years, and there is often a one-off fee as well.
A warning for those with existing debt
Mr Lewis explained: "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 per cent interest."
He added: "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 per cent deals are subtle. The 0 per cent 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 per cent ends may also increase."
Eligibility criteria may tighten
Mr Lewis said the most likely change, and the most difficult to spot, is that fewer people will be accepted for the best deals. He said: "They're going to tighten their eligibility criteria, so they might still advertise a three-year balance transfer 0 per cent 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."
Polling from StepChange Debt Charity reveals that almost one in six (15 per cent) 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.
How balance transfers work
Once you have a balance transfer card, you can move debt onto it from one or more existing cards, usually online or over the phone. You will need to tell your new lender how much you want to transfer and give them the account numbers of your old cards.
You pay a fee for each balance transfer you make, which is added to the amount you owe on the card. A balance transfer fee tends to be around 2-4% of the amount you'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. Consider your individual situation and weigh up the pros and cons.
Inflation and interest rates
A major driving force of higher inflation last month was motor fuel prices, which rocketed by 30 per cent in the year to September, the latest figures showed. 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".
