Make the most of the UK's holiday from debt
Loans and credit card payments may be frozen for three months, but you will still have to cut your borrowing.
If your income has been hit by the Covid-19 lockdown and you are worrying about making your debt repayments, don’t panic. The Financial Conduct Authority (FCA) has “announced plans to freeze loan and credit card payments for up to three months as part of emergency measures”, says Kalyeena Makortoff in The Guardian. If confirmed, the scheme would mean that you can apply to your loan or card provider for a break in your repayments that wouldn’t affect your credit rating, as with a mortgage holiday. Lenders would also have to waive interest charges on arranged overdrafts of up to £500 for the same period.
This will relieve pressure on many people facing an income shortfall, but the government isn’t waving a magic wand over your debt. When the crisis passes your debt will still be there. However, you can take steps of your own to tackle your debt. If you have credit cards you can’t afford to pay off, apply for an interest-free balance transfer credit card – but do it fast.
“I’ve heard unconfirmed mutterings... that credit card firms are already starting to tighten acceptance criteria, never mind the fact many people’s incomes maybe compromised. Therefore, if you need to cut existing debt costs … do it ASAP,” says Martin Lewis on Moneysavingexpert.com. The longest interest-free balance transfer deal currently available is 29 months from Virgin Money with a 3% fee. You can avoid the balance transfer fee with Santander’s 18-month interest-free balance transfer deal.
A £500 interest-free overdraft, meanwhile, is great news if you need a little bit of help getting through lockdown. But be very careful about building up debt on your overdraft. This week a long-planned change to overdraft charges came into force, meaning banks can no longer charge daily or monthly fees, merely a simple interest rate. Most banks planned to charge a set rate of around 40% on overdrafts, which will still apply when the current crisis passes.
Dodging overdraft interest rates
Avoid that enormous interest rate by shifting your overdraft debt onto a money transfer credit card. These cards allow you to pay money from an interest-free credit card into your bank account, giving you breathing space to clear the deficit without interest mounting up. MBNA will give you up to two years interest-free with a 2.99% money transfer fee.
Unfortunately, if you have a car finance deal the government has yet to announce any help. If you are going to struggle to meet your car repayments, you need to contact your car finance provider and ask for a payment holiday. Many are offering holidays or contract extensions, but unfortunately it isn’t guaranteed.