Martin Lewis shares 'crucial weapon' in cutting your credit card debtSource:ITV
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00:00OK, so what is a 0% balance transfer?
00:02This is for cutting the cost of existing debts.
00:05It's absolutely the crucial weapon.
00:07I want to really break it down for you.
00:08Let's imagine you have 2,300 pounds worth of debt,
00:12one on a stale card and one on a rotten card,
00:14both at relatively high rates of interest.
00:16So what do you do?
00:17Well, you apply for a new card that's
00:19got a specific, this is what we're talking about,
00:21a specific balance transfer deal to shift the debt.
00:24Here we go.
00:24The new card, we'll call it the Mark card, hey, why not,
00:27is 31 months, 0%.
00:30You've got a 2,000 pound credit limit.
00:32So what do you do?
00:33Well, the first thing is you look
00:34at the most expensive debt.
00:35That's the one growing quickest.
00:36That's the one you want to get rid of.
00:38And you say, please pay the debt off that one.
00:41And that's what a balance transfer is.
00:43There we go.
00:44The new card pays off the debt on the old card,
00:47so you now no longer owe it.
00:48Its debt's gone down to 0 pounds.
00:51And you now owe 1,400 pounds, but at 0% for 31 months.
00:55But you've got a credit limit of two grand.
00:57Now, in terms of balance transfers,
00:59they only let you balance transfer 90% of the credit
01:01limit.
01:02So that's 1,800 pounds in this case.
01:04So we've got 400 pounds left.
01:06Well, you may as well do it again.
01:07There we go.
01:09Pay off the stale card.
01:11Now you've got 1,800 pounds worth of debt here,
01:14and only 500 pounds worth of debt on the stale card.
01:16So if we think of it roughly, your average before
01:19was around 23%, 24% APR on 2,300 pound debt,
01:24about 600 pounds a year interest you were paying.
01:26Now, that's all interest free.
01:29You've got only 500 quid debt on there.
01:31So that's what?
01:31Just over 100 quid.
01:33That's 500 pounds of interest saved,
01:35which means far more of your money
01:37is clearing the actual debt rather than just
01:40paying the interest.
01:41And that gets you debt free quicker.
01:43That's why balance transfers are so important.