The best time to put the brakes on is before you crash into a brick wall. Sadly, when it comes to debt, many people leave it until after. Don’t leave sorting your debts out till January – straight after the year’s biggest spend period. Do it now.
To help, rather fortuitously, we’re seeing some of the best borrowing rates ever, and opportunities to cut costs for those with poor credit. Plus call centres have shorter queues now than in January.
So here are my top ten debt-sorting tips, though, of course, the prequel to all this is don’t borrow any more.
1.Debit cards can be worse than credit cards.
Spending on debit cards may feel better than credit cards. But, if you’re overdrawn, interest rates can be higher. Go beyond the limit, and there are charges too.
Therefore treat a overdraft as a debt. Do a budget to work out how you’ll pay it, and even consider shifting the overdraft to 0% cards to try to cut costs.
The MBNA card range allows this, letting you shift the overdraft debt to a 0% card for a fee of about 4%. Be very careful – get it wrong and it can cost a fortune. Full info at www.moneysavingexpert.com/superbalancetransfers
2. Shift existing credit card debts to 0% for 24 months
If you’ve a decent credit record (if not, see below), shifting existing credit card or store card debts to a new ‘balance transfer’ card can save you £100s or £1,000s.
A balance transfer means the new card repays the debts on existing credit or store cards for you, so you now owe it the money instead, hopefully at a special cheap rate.
The longest 0% deals for accepted new customers are currently Barclaycard’s 24mths 0% with a 2.8% fee, MBNA 22mth 2.85% fee and Tesco 22mths 0% with a 2.9% fee. For a full list and pros and cons, see www.moneysavingexpert.com/bts.
These cards are only interest free for debt shifted to them, not new spending. That’s at a hefty whack so avoid it – and always aim to fully repay the debt before the 0% ends or you’ll pay up to 24% APR on these cards.
3. Go for a lower fee balance transfer if you can repay sooner
The longest 0% deals are great if you need time to repay, but they come with a fairly hefty one-off fee of the amount transferred. If you can pay faster, go for a shorter 0% period, meaning a lower fee. These include NatWest at 13mths 0% for a 1% fee and MBNA at 14 months for a 1.25% fee.
4. Lock in credit card debts at 5.9% FOR LIFE
For those who need a lot longer to repay, an alternative to short term 0% deals is MBNA’s Rate for Life card. All debt shifted remains at 5.9% until repaid, though there’s a one off 1.5% fee.
Always make the minimum monthly repayments though, and don’t spend on the card, as that’s at 18.9% representative APR.
5. Poor credit score? Shift debts to 0% for 6 months.
All the cards above require a decent credit history. If not, it’s usually very difficult to cut the cost of existing credit, but right now there is a way.
The Capital One Balance card lets even some with past CCJs or defaults shift debts for 6 months at 0% (with a 3% fee). That will save money, however, do aim to repay it once the 0% ends as the rate jumps to a huge 34.9% representative APR.
If you can’t repay by then, check the APR on your current cards. If they’re about the same or higher, you’re still saving by shifting the debt. If they’re substantially lower, one route is shift debt to this card for six months then try to shift it back to the original card afterwards. Though don’t borrow more and use up that card’s credit limit in the meantime.
6. Repay the highest APR debts first. Many people split their repayments over several cards. This is tactically wrong. If you’ve several cards, throw all spare cash at the highest %-rate one, as that’s where the debt grows fastest, and just pay the minimum on others. Once that debt’s clear, focus on the next highest.
7. Pay off debts with savings. If you’ve spare cash, use it. Think about it: £1,000 in savings at 2% after tax earns £20 a year. If you owe the same on an 18% credit card, it costs £180 a year. Repay the debt with the savings and you’re £160 up.
8. You’ve a right to reject rate rises. If your card company says it’ll up the APR on existing debt, you’ve a right to Reject Credit Card Rate Rises – provided you agree not to borrow more. Lenders usually say this in letters, but rarely in plain English. Look for something like “you can close the card” to explain it.
9. Set up direct debits to avoid credit damage. Missing a monthly payment or even being late can lead to fines, black marks and losing 0% deals. A direct debit, even for the monthly minimum, protects against that. Yet just repaying the minimum won’t clear the debts quickly, so make manual extra payments on top.
10. Haggle with your plastic provider. If you’re not maxed out on your credit limit, many credit cards have hidden deals allowing you to shift debts to them cheaply. For example Barclaycard sometimes lets existing cardholders shift debts to it at 6.9% for life (for a one-off fee) and Halifax nine months at 0%. This lets you use your existing credit more efficiently and protects your credit score.
As a final thought, if debt’s taking over your life and bringing sleepless nights, it’s important to realise as long as I’ve been doing my job, I’ve never seen a case of unsolvable debt.
While it may not be quick or easy, there’s always a solution. Solutions are wide and varied, from cutting interest costs, budgeting, or simply getting free, non-profit one-on-one help. If you need help, make an appointment with a non-profit debt counselling agency such as Citizens Advice, StepChange (was CCCS), National Debtline or Christians Against Poverty. The most common comment I hear from people who’ve done it is: “I finally slept last night.”
50 Festive Fiver gift ideas
Every few years I run contest challenging my site users to come up with the best ‘make or buy’ sub-£5 presents for grown-ups and kids. This year’s winner was the 12 Dates of Christmas, an inspirational date night package for someone you love – from a picnic in the park to a candlelit bubble bath. Or for kids (Spoiler Alert!), plant a fallen bell from Santa’s sleigh in your garden on Christmas morning to make the kids’ eyes as wide as their smiles. For full winners and Christmas inspiration, go to www.moneysavingexpert.com/festivefivers
£10 Xmas champers
Until 3 Jan, Asda’s selling Pierre Darcys Champagne at £10 (RRP £24). Plus Aldi’s has Philizot Brut Numéro 3 champers at £10 (RRP £13, ongoing offer).