How to manage your debt
It isn’t just about cost reduction, it can mean you’re debt free quicker too – as if you pay less interest, it means more of your repayments clear the actual debt.
And now’s the perfect time to do it. As so many people look at their debt costs at the beginning of the year, lenders throw out better deals to attract your custom.
How to manage credit card debt
Credit Cards – cut costs to 23mth 0% no fee
This is easy, as there’s fierce competition. It’s all about balance transfer deals, where you get a new card that repays debts on old cards for you, so you owe it instead.
www.Halifax.co.uk has just launched the new longest-ever 23 month 0% debt shift, that has no fee. If you’re not sure you can clear your debt within that time, go longer. The longest 0% deal is www.MBNA.co.uk Platinum card at 39 months 0% with a 2.98% fee.
Yet don’t just apply in hope, as that hits your credit file. My full best buys guide at www.mse.me/balancetransfers includes a free eligibility calculator, which gives card-by-card odds of which you’re most likely to get – so you can home in on your winner.
Yet if you do balance transfer, always follow these golden rules.
- a) Never miss the minimum monthly repayments, or the bank can end your 0% deal and charge far more.
- b) Clear the card or balance transfer before the 0% ends, or the rate rockets to 18.9% – 20%
- c) Never spend on the card or worse withdraw cash. They’re not usually at 0%.
Personal loan debt
Unlike with credit cards, if you clear a personal loan you can be charged up to two months of interest as an early repayment penalty, so it’s slightly more complex…
– STEP 1: Call your current lender and ask it three things: a) What your ‘settlement amount’ is, ie, how much it would cost to pay off your loan today. b) How many monthly repayments you have left. c) The exact amount of your repayments.
– STEP 2: Work out what you will pay if you stick with your current loan, by multiplying the remaining months by the repayment amount.
– STEP 3: See what rate you could get on borrowing the settlement amount elsewhere.
For under £3,000, the cheapest route is likely to be doing a ‘money transfer’. Above £3,000, a cheap loan wins. Under £5,000 www.Zopa.com is cheapest at 4.6%-6.9% rep APR. For £5,000-£7,500, www.SainsburysBank.co.uk is 4.2% rep APR with a Nectar card (4.3% without). For £7,500-£15,000, Bank.marksandspencer.com is 3.3% rep APR.
Yet, sadly, like all loans these are ‘rep APR’ which means only 51% of accepted customers get the advertised rate, the rest can be charged more. My loan guide eligibility checker at www.mse.me/loanseligibility can tell you which you’re most likely to be accepted for, and as a very rough rule, the more likely acceptance is, the more likely you are to get the advertised rate.
– STEP 4: Work out if using the new borrowing to clear your current loan is cheaper than just continuing to repay.
How to shift your overdraft
Shift your overdraft to 0%
Overdrafts are often more costly than credit cards, especially if you bust your limit. There are two solutions. The first is switching to a bank offering a 0% overdraft. www.Firstdirect.com offers you £125 to join it and a £250 0% overdraft (you must pay in income of £1,000/month).
So if your overdraft’s under £375, this pays some off and the rest is interest-free. Also the www.Nationwide.co.uk FlexDirect account has a larger 0%, but only for a year.
Alternatively, in some ways it’s just simpler to pay it off with a money transfer card (see above), especially for larger amounts. You’ll need pass a credit check for both routes.
How to fix your debt
If you’re struggling to sleep due to your debts
This is very common emotion, especially at this time of year. If you can’t even meet minimum monthly payments, have non-mortgage debts bigger than a year’s salary or have depression or anxiety over it, you’re in what I define as debt crisis.
If so, forget my solutions above and get free, one-on-one debt counselling help. The places I’d suggest are www.Citizens Advice.org.uk, www.StepChange.org or www.NationalDebtline.co.uk. They are there to help, not judge. The most common comment I get afterwards is “I finally got a good night’s sleep”.