Money expert Martin Lewis has issued a warning to anyone using a debit card to manage their debt as he explained why they are actually worse for this than credit cards.
Returning to his ITV1 The Martin Lewis Money Show Live for a ‘debt buster special’ Martin told his viewers ‘I’ve got a warning’ as he set out why debit cards are worse than credit cards for people with an overdraft.
That’s because many high street banks charge more interest for the overdraft on their debit card current accounts than credit cards do, so it would actually be more expensive to be overdrawn on a debit card account than it would be to have money on a credit card.
The Money Saving Expert founder explained to his ITVX viewers: “I’ve got a warning. Many people think when it comes to debt, debit cards good, credit cards bad.
“But when it comes to debt, if you’re overdrawn, it’s credit cards bad, debit cards worse.
“Most overdrafts with virtually all high street banks and many others are at 40% AER (like an APR, similar-ish).
“Credit cards, 25%. Overdrafts are the most expensive form of high street debt. Treat it like a debt – you want to get out of it.”
Martin said those looking to get rid of their overdraft could consider switching to First Direct. The bank offers £175 as a switching bonus, and a £250 overdraft at 0%.
Martin said: “You get £175 for switching to it at the moment, you’ve gotta be new to it, and that can pay off some of your overdraft, and you get a 0% overdraft of up to £250 usually, not every time but most people do.
“But it doesn’t actually move your overdraft for you, so when you apply to switch, the normal process is your direct debits are moved over, your standing orders are moved over, that will happen. Normally it closes your old bank account but if you’ve still got an overdraft your old bank will say, hang on, do you want to pay this off, or we’ll keep it open because you owe us the money.
“So you’ll have to sort out paying that but you can go into overdraft on this one then pay off the old one.”
The Martin Lewis Money Show Live is still available to watch on ITVX.
