Finance guru Martin Lewis has issued an urgent plea to Britons regularly using their debit card overdraft, urging them to make a single, straightforward change to their spending habits that could save them hundreds of pounds.
The High Cost of Your Debit Card Overdraft
In the latest episode of The Martin Lewis Podcast, the founder of MoneySavingExpert.com challenged the common perception that credit cards are inherently 'bad' while debit cards are 'good'. He highlighted a critical financial blind spot for many: the exorbitant cost of a standard overdraft.
'A typical high street overdraft is at 40% annual interest, compared to a high street credit card at 25% annual interest,' Lewis revealed. This significant disparity means that for those frequently in the red, their everyday debit card is actually a source of 'more expensive debt than credit cards.' Lewis was unequivocal in his assessment, labelling debit card overdrafts as 'the big danger debt.'
Why a Credit Card Can Be a Smarter Choice
Lewis's advice is counter-intuitive for many who fear credit card debt. He is not advocating for unchecked spending. Instead, he proposes a strategic shift for your regular, budgeted purchases.
'All we're saying here is shift your normal spending from [a] debit card to a rewards credit card,' he explained. The crucial caveat is that you must 'spend within your credit limit... and have a direct debit to pay it off in full' each month. By doing this, you avoid interest charges entirely while sidestepping the costly overdraft fees on your current account.
Furthermore, Lewis reminded consumers of the powerful Section 75 protection that comes with credit card purchases. This makes the credit card company jointly liable for any purchases costing between £100 and £30,000, offering a vital safety net if a retailer fails to deliver or an item is faulty.
A Timely Warning as Christmas Approaches
This advice comes at a critical time of year. With the expensive festive season looming, many households face increased financial pressure. A recent survey found that around one in six Brits went into debt to pay for Christmas 2024, with many taking roughly four and a half months to clear the balance.
While careful budgeting is always the ideal, Lewis's guidance offers a practical solution for those for whom some debt feels unavoidable. Switching planned spending to a credit card, and paying it off immediately, can prevent falling into a high-interest overdraft trap, ultimately saving a significant amount in potential interest payments.
