Pay off your debt and improve your finances in 2012
Whether you have unhealthy debt levels or want to plan for your retirement, take the time now to rethink your finances and see the positive side effects throughout 2012.
PAY OFF YOUR DEBTS
One-tenth of Brits are constantly in the red and 62.2 million credit cards are in use in the UK. In an ideal world we would all clear our credit cards each month before the interest kicks in and never exceed our overdrafts.
Sadly, an unexpected car bill or plumbing job means that even the most virtuous of borrowers could find themselves on the wrong side of debt. The key is to have a responsible attitude to borrowing.
Make sure you're always on the most competitive deal possible. Comparison sites moneyfacts.co.uk and moneywise.co.uk will help show you the best credit cards and overdraft accounts on the market. With credit cards, avoid making only the minimum monthly payments.
For example, if you paid just the minimum 2.5% of your balance each month on a credit card debt of £2,500 charged at 18.4% APR (market average) it would take 26 years to repay and cost £3,531 in interest charges. Paying an extra £20 per month would clear the debt in six years and seven months, with a lower interest bill of £1,286.
If you've got a high interest rate on your credit card, consider taking out a balance transfer card. Such cards include substantial 0% interest periods so you can make repayments without racking up further interest. Remember, you should always clear the most expensive debt first.
FIVE WAYS YOU CAN IMPROVE YOUR FINANCES... NOW
Sometimes the smallest of measures can have a profound effect on our finances. Here are five easy steps to take:
1. DROP A BRAND
Say goodbye to the brand names at the supermarket and watch your weekly shopping bill drop.
2. SWITCH ENERGY DEALS
Energy bill prices are on the up but by switching providers, opting for paperless bills and paying by direct debit, you can make significant savings.
3. TAKE ADVANTAGE OF FREEBIES
Use websites such as vouchercloud.co.uk and vouchercodes.co.uk to download moneyoff coupons for shops and restaurants.
4. GET CASHBACK
Shop through cashback websites such as quidco.com and topcashback.co.uk to make even more savings but don't be tempted to shop for extras you don't need.
5. MAKE YOUR OWN
From packed lunches to home-cooked curry and pizza, ditch the takeaways and save a significant weekly sum.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
Rather than shopping online directly with a retailer, if you go to the retailer via a cashback website (you have to register as a member), when you make a purchase the cashback site gets a commission and rebates some – or all – of this back to you. The cash being paid back to you will vary wildly from site to site and even from product to product, so check you’re getting the best deal before you buy.