Saturday, November 14, 2015, AM | Leave Comment
One of the first things to do when you’re intent on implementing a debt management plan is to cut the costs of your debt.
Cutting Debt Cost
It’s all about repaying the debt as soon as possible, while simultaneously ensuring that you’re being charged the lowest rates of interest available to you.
Before you begin, check your credit files. Credit files can have false data, and that can hamper your ability to move forward.
You can check your files for free.
Get Cheaper Credit Cards
Credit cards, when used with discipline and some level of sense, can be the cheapest form of borrowing, particularly so when shifting debt over to a balance transfer offer.
This is possible to do whereby you can avail of 0% interest rates over the reasonably long term.
New credit is not always a requirement in order to cut credit card costs.
There are many credit card companies that allow an existing customer to move other debts to gain a special rate.
That, in turn, can create substantial savings.
One guy who did this managed to reduce his annual interest rate from £1,400 to £400 and that’s a relatively commonplace scenario for the shrewd among us.
Check with your Utility Company
There are a number of utility companies which offer to help should you have a sizable arrears on your electricity, gas, and/ or water bills. And yes, you do need to be their customer first.
Get in touch with your utility company/ companies and find out if they have such a scheme available.
Some UK companies that provide such a scheme include:
British Gas Energy Trust
E.on CaringEnergy Fund
EDF Energy Trust
Scottish Power Energy People Trust
Npower Energy Fund
Cheap Personal Loans
A standard personal loan can provide cheap debt. The fixed repayments provide structure, which is suited to folks who have a tendency to allow credit card debt to linger.
Unfortunately, however, individuals with poor credit ratings will not be able to get decent rates. So, an alternative for you is to consider joining a credit union.
A credit union is independently run and it aims to assist those who might not have access to other financial products and services. In the UK, there are around 500 of these.
Use Savings to Reduce Debt
This seems obvious, but, really, it’s not. Rather, it’s something of a blind spot that many people suffer from.
The interest paid out on a savings account will very likely be a whole lot less than interest charged on debt.
Once you’ve cut your debt wherever you can, use any savings you may have to pay off as much debt as you can. Focus on those high interest debts first and foremost.
Minimum Payments on Credit Cards
By paying the minimum payable amount on credit cards, you’ll be locked in for years.
If you make a minimum payment on a typical high street bank credit card that’s standing at £3,000, and it will take nothing less than 27 long years to repay.
That in turn will cost you almost as much as £4,000 in interest payments.
Remortgage and Shift those Debts to a Cheaper Deal
A mortgage is merely a loan that is secured against your home. If you don’t pay it off, the lender can snatch your house away.
Anyhow, based on this security, you can get a cheap rate over a long-term period.
If you’ve a reasonable amount of equity on your home, a cheap deal is easily obtainable.
That said, you should shift credit card debt and other loans over to your mortgage if it is indeed cheaper.
It’s simple, but if you don’t pay once you’ve done this, there’s an increased risk that you will lose your home. So think wisely before you make the approach.
There’s also the chance that various associated mortgage costs could increase such a life insurance.
Further, it might not in fact be cheaper after all. You pay this debt over the long term and thus you could end up paying extra interest.
Example: 5% over a 20 year period is a lot more expensive than 12% over five years. Further, this may not be an option since there are new affordability checks in place which have made it trickier to increase on mortgage debt.