Ever feel like you’re running in circles with your finances?
It’s Groundhog Day today. In Pennsylvania, Punxsutawney Phil the groundhog makes a prediction on the weather to come – or prognostication, as it is known. Of course, in the film of the same name, Bill Murray's character ends up reliving the same day again and again.
If you feel you're trapped in a cycle of financial worries or inaction, here are some top tips to beat your own money Groundhog Day.
Give up using your overdraft
Using an unauthorised overdraft every month can be costly. While you might find it difficult to stop, particularly if you’re regularly dipping into it every month, there are ways out of the hole. Budgeting is a good first step – write down your income, then list your expenses and see what you can cut out.
Secondly, make the switch to a bank that can offer you a free overdraft facility, but be careful not to just take this ‘free’ money for granted. It’s easier to work your way out of habitual use of an overdraft with these accounts though, as you’re not being dragged back into the red by fees. If you’re currently using your overdraft a fair bit, read Ways to get rid of your overdraft for good for more handy tips.
Compare current accounts with lovemoney.com
Pay more than the minimum on your cards
If you’re only making the minimum payment every month on your credit card, this is quickly offset by the interest rate, meaning that paying off your debt is incredibly slow and expensive. Instead, on payday, set a sum aside and immediately put it towards your credit card debt.
Not convinced? I’m going to use some figures borrowed from Barclaycard’s Platinum balance transfer card that illustrate how long it takes to pay off a debt of £1,000 if you only pay the minimum – which in this case is 2.25% of the amount owed on your monthly statement.
|
|
Paying the minimum monthly |
Paying £50 every month |
Paying £100 every month |
|
Interest in 1st year |
£75.96 |
£56.55 |
£23.41 |
|
Interest in 2nd year |
£138.87 |
£46.37 |
- |
|
Time to pay off balance |
18 years, 2 months |
2 years, 1 month |
1 year, 1 month |
That’s more than 18 years, just to pay off £1000 – and in reality you’d have paid a lot more than the initial debt, because interest would constantly be stacking up on top of it.
Even if you’ve got a 0% period remaining on a balance, this strategy makes sense. Say you have 12 months of a 0% deal left and an outstanding balance of £1,000. It’s worth working on the balance, even if you can only afford to put £50 a month towards it.
That would subtract £600 from the total, meaning that you’ll only be paying interest on £400 when the 0% period expires, rather than the full £1,000. Or you have a smaller debt to transfer onto another 0% card.
Compare credit cards with lovemoney.com
See if you can move your credit card debt
Instead of paying out on interest, you could also save money by moving your existing credit card balance a balance transfer card with a 0% period. If you’re currently paying interest on a sum that you owe on a card, you can apply for a 0% balance transfer card and shift over your outstanding balance.
[SPOTLIGHT]A fee will apply, and you have to weigh that against the benefits, but you can currently get an interest-free period of up to 35 months, which is plenty of time to work towards paying off your debts without extra interest payments hanging over your head. It’s really important that you never miss a payment though, as your card provider might then deny you the remainder of your 0% period.
Compare credit cards with lovemoney.com
Don’t let your ISA allowance just disappear
You can stash up to £15,000 away in a tax-free ISA account every year. Interest rates may not be what they once were on Cash ISAs – with top buys now just creeping above 2%. However, they’re a safe savings account and you don’t pay tax on the interest.
If you’re interested in securing a higher return, you might want to look into fixed savings bonds, where better rates can be found, but these are taxable, and you’ll need to agree to lock up your money for a longer period of time. You could possibly miss out on taking advantage of better rates if the market picks up.
Compare Cash ISAs with lovemoney.com
Start shopping around
It’s easy to just renew your insurance policies. But it’s equally hassle-free to take five minutes to compare your current insurance policies. Take a look at your current deals, then compare them against what’s on offer. You could save a bundle on your car, life and home insurance, and get great deals on travel insurance if you’re planning a trip abroad this year.
The same goes for your energy supplier – switching is becoming faster than ever before, with firms implementing the new 17-day switching process pushed for by Ofgem and the DECC. Some suppliers are offering sub-£1000 deals, and you could save up to several hundred pounds a year with a switch.
Compare private medical insurance with lovemoney.com
Remortgage
If your current mortgage deal is nearly over, it’s definitely worth comparing products to see if a switch could save you money in the future. Since a mortgage is such a large loan, a change of even 0.1% save you lots of money over the years.
Even if you're already on a standard variable rate (SVR) that you think is fairly cheap, it could be more expensive than fixed rates currently on offer. Fixed rates have plummeted in recent months so it's well worth having a look. Just make sure you factor any fees into your calculation.
Read How to remortgage for more information, and find the best option using lovemoney’s comparison engine.
Recurring debt nightmares
If you’ve been trying to pay off your debts for a while now, but the situation is not improving or getting worse, help is at hand. You can get free debt advice from plenty of sources, which can help you take on your debt and make positive steps towards clearing it.
These free debt services are open to all, are completely non-judgmental of your personal situation, and offer a variety of services that can help you back onto your feet.