Martin Lewis slammed the social norms around credit cards in his BBC podcast as the Money-Saving Expert explained a unique way of using them to bypass the debt aspect and make it “more powerful” than a debit card.
The finance guru got into the nitty gritty of the contested cards while answering a fan question from Helen, who was debating the topic of acceptable short-term debt with her husband.
Sharing his “catchphrase”, Martin emphasised that credit cards are ideal to use if you “pay it off in FULL every month”.
The expert explained: “A credit card has two purposes. Its first purpose is a transactional card, it’s a method of transacting and paying for things.
“Its second purpose is a debt card. If you can neuter its ability to charge you interest, and effectively neuter its debt ability, you can turn it into a transactional card.”
He highlighted three benefits of using this transaction-only card, and paying off the bill before it has the chance to accrue any interest, that makes credit cards “more powerful” than debit cards.
Credit card users can reap a host of rewards, with companies dishing out various bonuses such as cashback and Avios points for travel, not to mention perks like early access to presale tickets.
Moreover, credit cards offer the added benefit of section 75 protection, making the card provider and retailer jointly liable for purchases over £100.
Martin also highlighted that credit cards typically come with lower interest rates compared to overdrafts on debit cards; while the average high street bank overdraft rate hovers around 40%, general credit card interest rates are usually about 20%.
Acknowledging that this double-figure interest rate is “still not good,” he nonetheless advised that if people do end up in debt, “A credit card is often cheaper debt than a debit card”.
To effectively utilise credit cards, Martin laid out three golden rules: “You pay off in full, you never withdraw cash and you don’t go over your credit limit.”
He described this strategy as “incredibly powerful consumer jui-jitsu” and confidently reassured the caller, saying: “Tell your hubby, I’m on team Helen”.
