Question Time: Cutting Credit Card Debt, Scrapping the State Pension and more…

0:00Hello and welcome to the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is the first of our new The Martin Lewis Podcast Question Times, where each week you can send in your questions or call in and I will do my best to answer them. And we'll put a new one of these out every Monday. In this week's question time, you're asking about how does the credit scoring system work and could it be improved? Could the government ever scrap the state pension? How do you cut the cost of credit card debts? Is a power of attorney worth it if you're married? Is there a deadline to reclaim car finance?

0:41What do you do with a maturing cash ISA and a host more? Want to know how it's all going to work? Me too. Let's play the theme tune.

1:04I'm joined for this one because it's podcast only by podcast producer Matt. First question time podcast. You are the voice of the listeners. It's got to be good. Have you a good selection of questions for me? I think I've picked the best selection of questions and I'm very excited for the new pod. OK, and I'm very excited because this is podcast only, unlike live. So I think I can admit to those people listening to it. If you were to ask me a question that I didn't like, I could just say, don't want to do it, move on to the next one. You would edit it out and it would be seamless. So every question I'm sure will be good.

1:38Let's hope. Shall we go into our first question? Yeah. OK. Dog Wheeze. That's their handle. Shouldn't we have a law that there's only one credit score that everyone uses? I'm fed up of different scores, different rules and criteria. It's confusing and frustrating. Even if you use Experian, some banks still have their own extra criteria on top. I mean, I'm afraid the question is based on a fundamental misunderstanding. You do not have a credit score. There is no such thing as a credit score in the UK in the way that you're talking about it. When you apply for credit, every lender will score you differently based on its own wish list of what is a profitable customer.

2:19Now, they may well use data from one of the three credit reference agencies, TransUnion, Experian or Equifax, and they will plug that data in and some may even plug it in a bit of a similar form to the credit score that you've got. But we don't have an official number that dictates your borrowability in this country. They do in other countries, including the United States, I believe. So what's actually happening is when you go and get your credit score, the one that you're given where you know your number, maybe out of a thousand or out of 700, depending which agency it's with. All that is, is that particular credit reference agency's idea of how a typical lender may see you.

3:03It doesn't mean a lender will see you that way. So it's actually your question of would it be standardized? It's so far from being standardized. now to an extent I think that works because different lenders have different priorities and if it was standardised then you would you know when you're rejected by one you'd be rejected by all and we don't want that to happen so I'm slightly unsure whether it's the rejection ability or the lack of transparency ability that you just want to be able to know your credit score my answer would be you don't have a credit score the credit scores that you get from the credit reference agencies are interesting my view would be if you saw a big drop in your credit score that is something to look at and to be concerned about.

3:40But when you see small moves in your credit score, I mean, just ignore it because it isn't a material thing. The credit score doesn't actually mean something particularly solid. And it's most important to note that credit scores don't contain the single most important piece of information that lenders use when they assess whether you are going to be able to borrow or not, which is your income. Because a whole part of deciding whether you'll be able to borrow or not is an affordability score based on your income. Well, credit reference agencies don't have your income. Firms get that from your application form data.

4:13So the credit score you get is actually missing a whole load of other factors that could mean you're rejected, such as your affordability score. And which is more important, credit score or affordability score? Well, it depends on the product. Let me give you an example. Apply for a credit card and your credit score is pretty important. Why? Because when you apply for a credit card, they give you a credit limit. Now, your affordability score, how much you can afford to repay, will often dictate your credit limit. So poor affordability score, low credit limit. Good affordability score, high credit limit.

4:47Whether you get a credit card or not depends on your credit score, which is basically where they're trying to predict your future behaviour based on your past behaviour with credit. If you apply for a personal loan, which is for a fixed amount, well, then your credit score is part way for dictating acceptance, but affordability will be really big. So someone may be accepted by a company for a personal loan at£3 ,000 and rejected at£10 ,000. That's not because their credit score's changed or the credit score that particular firm does. That's because they've failed the affordability that it looks like they can't afford to repay a£10 ,000 loan, they can afford to repay a£3 ,000 loan.

5:27So I think we're so far away from the process in the question, we're never going to get to that type of standardisation, it would mean a massive shift in the structure of how lending works in this country. Okay, understood. Thank you very much.

5:44Another question, Fee, should we get power of attorney for each other, even though we're married? Yes, next question. I should probably explain the question, I really. Why? Power of attorney. I mean, I often argue power of attorney is more important than a will. A will is something that dictates what would happen to your money when you die. Power of attorney dictates what would happen to your money when something happens that stops you being capable of looking after your finances for yourself. And there's also a health power of attorney, which is what happens and who can make your health choices for you if you no longer have the capacity to make those choices for yourself.

6:19And so let's just think about this. Let's be blunt. If you don't have a power of attorney and you were to use capacity, then it is incredibly difficult for somebody to take over your finances. All your money may be locked away in your bank account and they couldn't even use it to pay for the care that you needed if you needed to pay for care. They would have to go in England. It's called the Court of Protection. I cannot tell you the nightmares I hear about people applying to get Court of Protection and to be awarded that for one of their relatives who's lost capacity because they didn't have power of attorney.

6:52Power of attorney is not perfect. I'm not going to go into details. There are problems with it and it can be a system that's abused but it makes it so much easier in the event that if somebody loses capacity, that somebody else can take over, manage their finances and get everything sorted. I would very strongly recommend it. I suspect your question is, I mean, the fact that you're married is neither hither nor tither here, that would affect what happens if one of you were to die. But it doesn't mean you can automatically control the other's finances. I mean, maybe if you had everything in joint products, then you might be able to work a way through without power of attorney.

7:28But in general, it's power of attorney, both for finances and health, is something I'd strongly recommend that people get to, you know, when someone loses capacity, it's an incredibly difficult and stressful time to compound on that difficulty of accessing money and financial, the financial knock on problems that would occur on the back of it isn't something you want. Oh, and I should note, I'm talking here about lasting power of attorney, the document that works and everything. You can have a sort of single standalone different types of power of attorney here, but we're talking about the main one that people think about.

7:58So I go back to my original short answer, yes. Okay, Martin, I've got a caller for you. John is in Hyde. Hi, John. Hi. Hello, John. You are our first ever caller on the Martin Lewis Podcast Question Time. Welcome on board. No pressure, but it needs to be a good question, mate. I was going to say, no pressure at all. Thanks, Martin. What can I do for you? Yeah, so the question was, is it possible that our UK government could remove the state pension? If it was possible, how likely do you think that could be? OK, technical answer, yes, it is possible. So Parliament is what's called omnicompetent, a technical term meaning Parliament can legislate anything it chooses to do.

8:44I mean, just to take this to an absurd level, Parliament could legislate that the United States was part of Great Britain. And under UK law, the United States would be part of Great Britain. Clearly, it would be a nonsense, but it could do it. So when you ask me about possibility, I can't answer anything other than yes. Do I think it's likely? No. So what do I think is more likely? I think the most likely eventuality with the state pension is that the age at which you get it is increased. and I certainly think by the time you know someone who's 18 now retires it's probably going to be in their 70s when they get their state pension not in their late 60s so I would say in terms of it I sort of my assumption is you're getting what are the risks to the state pension and I'm going to give you that in order of likelihood so I'd say that would be the most likely risk OK.

9:39The next most likely risk, and I think we've moved from the first one is probable. So I think that is likely to happen. This next one, I think, is unlikely to happen, but not improbable, if you see what I'm trying to say. So I'd say limited odds, but I wouldn't be bowled off my chair if it did happen at some point in the next 20, 30 years. How old are you, by the way, John? 53. Okay, so I still think this is unlikely by the time you're going to hit your state pension age, but maybe not impossible by the time that you got, you know, you're getting on later in life, once you're in your 80s or something.

10:17It's a means testing of the state pension. So therefore, I mean, the state pension is already taxable. Many people go, no, it is. The state pension is already taxed. The income you get from the state pension counts towards your taxable income. Now, if you only get state pension income at the moment, it's under your personal allowance, the amount that you can earn tax free each year. So you won't be taxed on it. But if you have state pension income and other income, both are added together and it counts as taxable income. Means testing could occur. They just say the amount that you're going to get depends on how much other income you have.

10:53I still think it's unlikely. It would be hugely hotly contested. I think certainly if you were a government and you wanted to do something unpopular, that would be incredibly unpopular. It would be less unpopular to get rid of the triple lock. Do you know what the triple lock is? I've heard of it. I'm not sure I do. Triple lock says each year the state pension goes up with a higher of average earnings, inflation or 2.5%, whichever is higher, which means it's guaranteed to keep rising. I certainly think before we saw means testing, we'd see the end of the triple lock, maybe go to a double lock or, you know, you get rid of the 2.5 % minimum because it means it keeps going up and up and up, you know, almost disproportionately to everything else.

11:33I'm not saying that's a bad thing, but I'm saying that's the way it works. And then getting rid of the state pension in its entirety. I mean, that would be fall off a chair, gobsmacked, protest in the streets type stuff. So in terms of likelihood, I've slightly changed my original order. Most likely is increasing the age. Second most likely and still relatively likely is getting rid of the triple lock. Much further down the scale is means testing and virtually unthinkable is getting rid of the state pension. But you know what? I'm saying that with a 2025 head on. Maybe you'd ask me in 2040 and the whole world is different and who knows?

12:09Yeah, understood. Hopefully I'll be retired by then. I think you'll get to retirement and nothing much should change. Yeah, I think my concern, Martin, was really along the lines of, you know, obviously I've got a pension and I've contributed to a pension since I was 18. Yeah. And I guess you make that on the best assumptions that, you know, there will be a state pension. I guess my fear was, you know, would I, at this sort of later stage in life, have to make an adjustment that I hadn't really planned for? I think that is unlikely. Unlikely, yeah. Very, very, very unlikely. And I would suggest that most people planned for the state pension to continue to be there.

12:47in the form that it is currently, maybe with the odd little bit of tweaks at the sides. But for it to be there, and that's all we can do. Simple as that. Thank you so much for your call. Thank you for being our first caller. No, thank you for this one. Thanks, John. No, no, no. Thanks, Martin. Cheers, mate. Now, just to say, I do hope you're enjoying this, our first of the new The Martin Lewis Podcast question times. If you would like to suggest a question for a future question time, then just email martinlewispodcast and Martin is with an I I'm not the former newsreader martinlewispodcast at bbc.co.uk and they will all go to producer Matt who will have to filter them through and also we're looking for some successes of the week what I'd really like to do in future podcasts is to try and do some successes of people who've listened to some of the information acted on it and saved money and can inspire others with their stories so do get in touch with your successes either from listening to this podcast or the normal podcast or any other work I do, but just don't tell the BBC that.

13:48And it should all be good.

13:53Prakash has asked, credit cards are piling up and interest is horrendous. How could I move to clear these debts and start saving for the future? OK, look, it's never particularly easy and you have to work out whether you want to do this inside the system or outside the system. So I'm going to start by giving you my three questions that will help you decide. So question number one, are you able to meet at least the minimum repayments on your debt? Question number two, are your debts bigger? And I'm talking not counting student loan or mortgage. Are your debts bigger than a year's after-tax salary?

14:34Question number three, are you having anxiety or struggling to sleep over your debts? If you can't afford the minimum repayments or they're bigger than the years after tax salary or you're having anxiety or mental health issues over your debts, then I would opt out of the system and I'd go and get help from a non-profit debt counselling agency like Citizens Advice, National Debt Line, Step Change, Christians Against Poverty. If, however, it's not that bad and it's just annoying and you're paying the interest each month, then you may want to try sticking within the system. When you go outside the system, you're effectively putting your hands up and saying, I want it to be sorted.

15:12I want a debt management plan or some other form like that. I accept that I'm going to struggle to get borrowing in the next few years because of it. If you don't want to do that, then the first thing you would look at doing is whether you can do a balance transfer. A balance transfer is when you get a new card that pays off debts on old cards for you. So you now owe the new card money, but hopefully at 0 % interest. And you can currently get up to 34 months 0 % interest balance transfer cards. So effectively, you're going to shift the debt from one card to another, but it's now interest-free, which means more of your repayments clear the actual debt.

15:51And this can save you hundreds or thousands of pounds in interest repayments alone. It's absolutely worth doing. The difficulty is being accepted for a card so make sure you go onto a site that has an eligibility calculator for balance transfers that will compare all the top cards on the market and tell you which ones you're most likely to be accepted for so you can hone in on the easiest form of acceptance. You then want to move your most expensive debts, the ones with the highest APR, onto the 0 % card. If you've got more debts after you've filled up the 0 % card then once that's all done, apply for another 0 % card.

16:25It's also worth looking at the cards you currently have. Some existing credit cards, if you're not up to the credit limit, may allow you to move debt from other cards onto them at a cheap rate. So you might get a 0 % offer from your existing card, so you could move debt from another card onto that. And even if they don't, let's say you have two credit cards and one is at 18.9 % interest and one is at 22.9 % interest. Well, if there's room on the 18.9 % interest card because it's a lower interest rate. See if you can shift any of the debt from the highest interest rate card onto the lower card.

16:57So that's, you know, it's all about credit card shuffling and moving debt around to where it's cheapest. Then you focus your repayments on the highest APR card. That's the one that's most expensive. That's the one where the debt is building up more and more and more. So you want to get rid of that quickly, do minimum repayments on everything other than the one that's got the highest interest rate. And then as soon as that highest interest rate card has gone, you move to the second highest interest rate card. Work through that, put yourself on a tight budget, do a money makeover on every other product that you have to see, could I do the get the same for less?

17:31Do I really need this? Go that cold turkey on your spending for a year or two, get rid of the debt, move into the savings world, the clouds start to disappear, the sun comes out and life gets a bit easier. I know in reality it's never quite that easy, but that's the type of way that you should be thinking and I wish you the best of luck with with it. Right, back to Matt. What other questions have you got? Okay, let's ask you a question from Lucy. Not a question, she said, but she was walking down the street when she heard one neighbour shout to another, have you booked your travel insurance yet?

18:08Martin Lewis says you must do it straight away. See, Martin, people are listening. Well, I'm very glad they are and hopefully some people are listening to this podcast or I'm just talking into the air and so are you? Yeah, that's the ASAB rule. When you book a holiday, get your travel insurance ASAB as soon as you book, because half the point of travel insurance is to cover you in case something happens before you go away that stops you going away. So the ASAB rule is really important. It's very simple on a single trip policy. If you're just buying a policy to cover a single trip, you go to the travel insurer, you put in the dates of your holiday, even if that's in four month's time, but you pay for the policy now, that means you have a policy in place, even though the dates you've given is for a holiday in four months time.

18:51If you have annual travel insurance, you want to have a policy in place that's active in until and including the end of your holiday. So why do I stress it that way? Well, let's say you're going on holiday next April and your annual travel insurance stops in January. You want to get yourself a policy that covers you from January onwards in place as soon as you possibly can really to stop any issues just in case you won't be able to go on holiday in advance. That wasn't a question but I liked it anyway. Okay Matt we've probably got time for a couple more. What have you got? I've got one that's actually quite topical.

19:28There's two actually. I'm going to ask them together because they're quite similar. So Sally is asking is there a deadline for claiming compensation through historical car finance agreements and what if I've not retained the information necessary to claim them? And Alec is also asking, when can people start expecting compensation for car finance? There's absolutely no deadline for claiming. We are still in the regulators deciding what will happen stage. We're hoping that a consultation will come out in October. It will probably take time to go through that consultation and payouts are not expected until sometime in 2026.

20:05when in 26 depends on exactly what the regulator will decide to do. Now, the regulator suggesting over 14 million people may well get a payout, primarily people who had a discretionary commission arrangement. A discretionary commission arrangement is where the broker or car dealer could charge you more interest and get more commission on the back of it. And if they did that without telling you and they never normally told you, then you had a discretionary commission arrangement and you are likely going to be entitled to some money back. The only way to know if you had a discretionary commission arrangement, because it was done without telling you, is to put in a complaint and ask the car finance firm if you had one.

20:47Do not use a claims management firm for doing that. The regulator says if you feel that that's the situation, you might want to put in a complaint now. There are free tools online that will do that for you without any problem. So don't need to pay anybody, even on a no-win-no-fee basis, to do that. We don't yet know, and this is what the timing is all about, whether it will be an automatic payout system where you could opt out of being paid out and firms will just write to you and say, here's the money, or you will have to opt in. So they'll write and say, we think you're owed. Do you want to put in a complaint?

21:17The second version will be quicker. So I suspect that's the one they'll go for, but I haven't got a clue. We're not going to hear about this until the end of the year. But no, there are no deadlines in place. You have not missed out. This is still in play. And I would go and do a little bit more reading on it. And maybe if you think it's you because you had a higher purchase or PCP deal between 2007 and January 2021, then you might want to put in. I'm just thinking of the exact phrase of your question. You asked me, is there a deadline? There is no deadline in place at the moment. But almost certainly when the regulator announces what's happening, it will put a deadline in place.

21:53But that's a future deadline. It's not a past deadline. So it's not one you need to worry about right now. but we don't know what it is right now. They might say you've got a year to claim or something but we're not at that point where they've even set the deadline yet.

22:08Right, Martin, a bit of a random one. Paul wants to know, pineapple on pizza, yes or no? Personally, no, but I would defend anybody else's right to eat food in any way they want and if they want to ruin their pizza by putting pineapple on it then that's a perfectly legitimate decision for them to do. Personally, I was surprised the other day to learn that if I have a bowl of barbecued baked beans and I just put them in a bowl and I eat them a bit like soup, that that is apparently unusual. Well, I don't want the toast. I don't want the carbs. But you know what? If I want to eat my baked beans that way, I will eat my baked beans that way.

22:47And if some people want to take that overly acidic fruit, which is very nice when it's fresh and you're eating it, but should never be cooked and put in a savoury dish, but if they want to do that, While I would defend my right not to eat it, I would defend their right to put pineapple on pizza any day. Next question, move on. I'm learning so much about you. Karen is asking, can you explain the ISA rules? My fixed rate ISA has matured and I've already got another fixed rate for this tax year. Where can I put the matured ISA? It's currently in a cash ISA. OK, so I think what that question means, I can explain the ISA rules, but I'm not going to go into the big ISA rules.

23:26I think you want the specifics on this question. So you have opened a new cash ISA for this tax year, but you have a cash ISA you set up in the previous tax year that's going to mature. And it sounds to me like you're a bit worried because you can only put£20 ,000 in a cash ISA per tax year. What happens? The important thing to understand is the rules on ISAs are about putting new money in. You are only allowed to put£20 ,000 of new money in per tax year. But once money is in an ISA, unless you take it out of the ISA status, it stays tax-free year after year. So, what do I mean? Your fixed-rate cash ISA that has matured and has now probably gone into an easy access cash ISA is still a cash ISA.