Martin's New Year debt cost-cutting masterclass
Can't afford to clear your debt? You can't afford not to try and move it to 0% to save £1,000s
Credit cards, loans, overdrafts, and more...

Debt can be depressing, dangerous and debilitating, but don't ignore it, especially now. Sadly, the pernicious spectre of over-indebtedness is lifting its ugly head higher. UK unsecured borrowing is at its highest since 2004 as the latest Bank of England credit card data shows an additional £1,200,000,000 borrowed in November alone... before Christmas hit.

To see debt grow while real incomes fall - if, as I suspect, it's to cover growing daily costs - is scary. As what'll change in future to mean people will be able to cover their usual outgoings AND make debt repayments on top? If your debts are causing you real worries right now, please jump straight to debt crisis help below.

For everyone else, don't leave debt to fester. Tackling it head on means you can reduce the cost and ultimately the debt sooner. So as New Year debt bills are being received by millions, it's time for my annual January interest-cutting masterclass - to save £100s or even £1,000s by reducing the interest you're paying on existing debt.

This is the easiest debt cost-cutting. Simply shift your debt to a new, cheaper card. Yet the direction of travel ain't great. This time last year you could get 35mths 0% and many cards gave cashback too. Yet the UK base rate rise means deals are worsening, so for safety, sort it sooner.

The key tool is a 0% balance transfer, where you get a new card to repay debt on your old card(s), so you owe it instead, but at 0%. Your repayments then clear the debt rather than just mostly cover interest.

- To AVOID REJECTION, spend two minutes on a 0% eligibility calculator. This shows which of most top cards you can likely get, listing your bespoke acceptance odds for each. That way you can minimise applications, and protect your creditworthiness.

And even a slim acceptance chance may find a route, as Adam emailed me after listening to my podcast: "I applied to the top eligibility checker result which estimated I'd just a 20% chance and, guess what, I was accepted with a £3,500 credit limit, two years' 0%. This debt was 20% APR. I can now focus on other debts, potentially having an extra £1,300ish. You mention the link between money and mental health. Well... your advice has really lifted me."

- If you've a choice, go for the lowest fee, within a 0% period long enough to clear your debt. Most balance transfer deals charge a one-off fee as a % of the debt transferred, so aim to minimise that. Yet if you're unsure, it's not that big a deal, just play safe and go long.

Always follow the Balance Transfer Golden Rules: It's not just about getting the right card. Full help in Best balance transfers (APR examples), but in short...

a) Never miss your min monthly repayment, or you can lose the 0%.
b) Clear the card before the 0% ends, or you pay the higher APR.
c) Don't spend/withdraw cash. It usually isn't at the cheap rate.
d) Usually you must transfer within 1-3mths to get the 0%, do check.
e) You can't transfer between two cards from the same banking group.

Quick Balance Transfer FAQs (click links for answers)
Q. Is it worth applying if my eligibility odds are low?
Q. What if my credit limit isn't big enough?
Q. Can I shift debt to existing cards too?
Q. Should I try to pay off my biggest debt first? SPOILER: NO.

Store cards are just credit cards you only use in one store chain, but usually with far costlier interest, eg, New Look is 28.9% rep APR, Argos 34.9%. In the old days I used to call them the devil's debt, but that was before payday loans. If you've got them, you can usually balance-transfer store card debt too, so just follow the help above.

Almost all major banks now charge about 40% interest for overdrafts, double the cost of many high street credit cards. So for many, your priority is to clear overdrafts as they're so expensive (even if it means making just minimum repayments on credit cards, so the spare cash reduces your overdraft), though check too if you can cut the interest cost...

a) Can you switch to a 0% overdraft? Two banks currently offer 0% overdrafts. First Direct pays switchers £175 and many get an ongoing 0% overdraft of £250 (40% EAR above that). So for smaller overdrafts, under £425ish, the £175 will clear some debt and the rest is interest-free.

Alternatively, many new to Nationwide FlexDirect get a year's 0% overdraft, which can be larger than First Direct, though it depends on a credit assessment. Only use this as a route to clear the overdraft within a year, as it rockets to 40% EAR after.

Both banks let you do eligibility checks on their websites, so you can see before applying whether you're likely to be accepted.

b) For larger overdrafts, do a 0% money transfer eligibility check. A 0% money transfer is where you get a new card that pays money into your bank account, effectively clearing your overdraft, so you now owe the card instead but at 0%. These are rare specialist cards, so use the 0% money transfer eligibility calc to see if you'd get one, then before doing anything read the full step-by-step in 0% money transfers to ensure you do it safety (as it's easy to get wrong).

c) Treat overdraft borrowing like any other debt - repay it. Try and repay a set amount each month, eg, £50 (so you should always start the next month with a £50 smaller overdraft than the one before).

Do also consider moving direct debits to just before payday if you can, the idea is you're overdrawn for less time so costs are lower. And these are just the tip of the iceberg. Do see our Nine overdraft cost-cutting tips for more help.

The impact of UK base rate rises has been more profound on personal loan rates than on credit cards. The cheapest loans for bigger amounts are now not far from double those this time last year, and they're likely to continue to rise.

So it's worth the exercise of seeing if you can cut costs, though the success rates won't be that high unless your credit score has improved over the last year or two. To do this, the simple question is can you get a new cheaper loan to clear your existing one and pay less?

The answer has some complexities, as it's not just about finding a cheaper APR (though that's the start point, no point bothering if not) as there can be a couple of months' early repayment fees. Full help in Cut existing loan costs, but here's a brief ABC...

a) Ask your current lender for a 'settlement figure'. That's how much it'll cost to clear your current loan, including any early repayment costs (which tells you how big a new loan you'll need to get to clear it).

b) Find the cheapest loan for the 'settlement figure' and if you can get it. Our Loans Eligibility Calc shows your odds of acceptance for many loans - it's really worth checking that before applying. Full current cheapest rates are in Cheapest loans (APR examples), but briefly...

c) Find out if a new loan's cheaper than your current one. Multiply your monthly repayments by how many months you have left (ask the lender if you don't know) to find how much you'll pay if you stick. Then compare that to what the new loan repayments will cost. Or just plug the figures in to our Loan Switch Calculator which does it all for you.

It worked (twice) for MoneySaver Lisa, who emailed us a while ago: "Last year I needed to get a car and reluctantly took a loan at a whopping 18.9%. I read your Feb newsletter & was able to secure a new loan at 7.9% and over four years. As if that wasn't good enough, I tried again and got another loan at 2.9%. Thank you, thank you, thank you." Rates are up since then though.

Whether you get a new cheap deal or not, always aim to repay as much as you can, as quickly as you can, without damaging your financial stability. Here are five further things to keep your costs down...

a) Focus on repaying the highest-interest (APR) debt first. The higher the interest, the faster the debt grows. So list all debts in APR order, and use all spare cash to clear the highest and just pay minimums on everything else. Once it's clear, focus on the next costliest, and so on and so on. That'll get you debt-free quicker. For avoidance of doubt, overdrafts are a debt and should therefore be included (but don't include student loans).

b) Don't look at debt in isolation. No one gets into debt for its own sake, it's to pay for other things. So you have to look across all your expenditure... go through everything you spend money on and see if you can do it cheaper or better. Our money makeover takes you through some of that, and of course the latest info will be in this email each week.

c) Do a budget. As well as cutting costs, get control of all your spending. The best way is to do a budget to see where the cash is going. Look at your finances across the year, not just a snapshot of one month. Then what really counts is how you stick to it - many who've tried swear by (or at) my piggybanking system.

d) Boost your credit score. You'll be eligible for better debt cost-cutting deals in future. See my 27 ways to boost your credit score guide.

e) Got savings? Use 'em to clear costly debts. Millions still have savings, though many are using them up. Some have an emotional attachment to them ahead of clinical financial decision-making.

Yet in practice, saving is just giving your bank a loan - as it pays you far lower interest than it charges the other way round. So if your debts are at a higher rate than you earn in savings, repaying the debt with the savings likely adds up, as long as there are no early payment penalties.

And with costly credit cards specifically, if you do clear them, leaving you with no emergency savings, keep them open, so in the worst case you can use them again in an emergency, leaving you no worse off in total but saving interest meanwhile. Full help in Pay off debt with savings?

My focus today is the main unsecured debts you can save money on, but in brief, let me zip through where to get info on a couple of others:

- Mortgage deals. Rates rocketed over 2022, but have come off a little in the last month. Still, most homeowners will find when their current deal ends, their new one will be vastly more expensive. There's a huge amount of help in our Mortgage MoneySaving section, but in brief...

a) Check the top mortgage rates using our Best buys tool.
b) Ask your existing lender for its cheapest deal. Known as a product transfer, these days these may be the cheapest deals for many.
c) Use our Ultimate Mortgage Calculator to compare deals.
d) Speak to a mortgage broker to find a lender likely to accept you. They can have extra info not available to the public, access to special deals, and can help guide you through.

- Buy now, pay later. Buy now, pay later (BNPL) is interest-free, so there are no costs to be cut. Used right, it's an easy way to spread payments if needed. Yet never forget IT'S A DEBT. The reason it's interest-free is because shops pay as it encourages people to buy more stuff.

Don't use it unless you need to, and ensure you can afford to repay. It's still not regulated, which can make it far more difficult if things go wrong (and they do). See our Buy now, pay later guide for more help.

The solutions above involve still being in a functional relationship with your debt. That means you can afford to repay and you just want to cut the cost. If they're unaffordable, you may need a different tack. There's full help in our Debt crisis help guides, but let me ask you three questions now to help you decide which route is right...

- Do you struggle to meet minimum monthly payments?
- Is your total debt (bar mortgage/student loan) over a year's salary?
- Do you have sleepless nights or depression / anxiety over debt?

If you answer yes to any of these, forget the solutions above, instead get free, one-to-one debt counselling help from Citizens Advice, StepChange or National Debtline. And if you need emotional support, try CAP.

They're there to help, not judge. The most common thing we hear after is: "I finally got a good night's sleep." And don't feel alone, there's no stigma, you can sort this.

Read inspiring stories in our Debt-Free Wannabe forum, and see my Mental Health & Debt guide.