Six bad financial habits to throw onto the bonfire!

Got a few bad financial habits you need to dispose of? Then get into spirit of Bonfire Night and toss them onto the fire for good!

Managing your finances correctly isn't always easy. But quite often, it's simply a matter of swapping your bad habits for good ones.

And as today marks Bonfire Night - when many of us will be huddling around fires to keep warm - it seems appropriate to highlight some of the bad habits you could throw onto the bonfire!

1) Stop only paying off the minimum monthly repayment

Minimum monthly repayments on credit cards are typically set at ridiculously low levels. So if you're only managing to pay off this amount each month, it's going to take you a long time to pay off your debt in full. What's more, you'll end up forking out a lot in interest before you clear your balance.

For example, if you had a balance of £1,500 on a typical credit card, charging 17.9% APR, and paid the required minimum of 2% of the outstanding balance each month,* it would take you more than 20 years to pay back the balance in full. 

But if you set your monthly payment at £60 a month, it would only take you seven years to pay off the debt - and you'd save yourself £4,200 in interest. Double your monthly payment to £120 a month, and you'd be debt-free by February 2012, saving yourself £5,600 in interest in the process.

So remember - if you can afford to pay off more than the minimum monthly repayment, make sure you do.

2) Stop spending your savings

When times are tough, it's even more important to build up an emergency cash cushion. With the threat of redundancy lurking around the corner for many of us, knowing you've got a nest egg to fall back on can be reassuring.

So try to avoid dipping into your savings if you can, and aim to put away at least three month's salary into a best buy savings account. I recommend the Citibank Flexible Saver Issue 6 which is offering an interest rate of 3.30% - including a one year bonus of 2.25%. Alternatively, you could consider the ING Direct Savings Account which offers a guaranteed interest rate of 3.20% for the first year.

For further information about these accounts, read The top 18 savings accounts. And if you'd like more tips on saving, check out our build up your savings goal.

3) Stop ignoring interest rates

If you have successfully got into the savings habit, make sure your efforts aren't wasted by having a savings account which pays a rubbish rate of interest. These days, savings rates change continuously so it's worth checking your rate of interest every six months to see whether you need to switch to a more competitive savings account. You can easily do this through our savings centre.

4) Stop thinking of your overdraft as your own money

Just because you have an overdraft, it doesn't mean you have to use it. Don't regard your overdraft as 'free' money, because it's not. Having an overdraft can work out to be a very expensive debt, so it's time you got rid of yours.

One way to tackle your overdraft debt is to use a credit card. A handful of credit cards - such as the Virgin Credit Card - will allow you to pay off your overdraft by transferring money from the card into your current account. In the case of the Virgin Credit Card, your debt will then be interest-free for 16 months! That means you can focus on clearing that debt without worrying about interest for those 16 months. Just be aware that you will have to pay a transfer fee of 4% and you'll need to pay off the balance in full within the 16 months, otherwise you'll be hit with a hefty interest rate.

Alternatively, you could switch your current account. The Alliance & Leicester Premier Direct Current Account, for example, offers an interest-free overdraft for the first 12 months, with a maximum limit of £2,000 as long as you pay in at least £500 every month. After that, a usage fee of 50p a day applies, up to £5 a month.

Find out more in Wipe out your overdraft forever.

5) Stop spending on a credit card

If you use your credit card properly, there's nothing wrong with using your plastic for spending. For example, if you always pay off your credit card bill in full each month and use a cashback credit card, this can be a great way of earning some extra cash.

However, a credit card shouldn't be seen as extra spending money. If you're struggling with your credit card debts, it's time you stopped spending and sorted your debts out.

The first thing to do is transfer any credit card debt onto a 0% balance transfer card. You can get over a year's interest-free credit - giving you plenty of breathing space and time to tackle your debts. Just remember that you'll usually have to pay a 3% transfer fee.

Try to pay off your debts in full during the interest-free period, but if you know you won't be able to, you'll need to transfer the remaining debt to another 0% balance transfer card to avoid being hit with a hefty interest rate.

Paying off your credit card debts can give you a great sense of achievement, so try to avoid racking up further debt by spending more. If you really have to spend on a credit card for some reason, get yourself a 0% new purchases credit card.

The Tesco Clubcard Credit Card, for example, will give you 12 months interest-free on your spending. So this means you can spend on the card, without worrying about earning any interest on your spending for a year. Again, try pay off the balance in full by the end of that 12-month period. If you can't, transfer it to a 0% balance transfer card.

If you'd like to learn more about paying off your credit card debt, check out our pay off credit card debts goal.

6) Stop ignoring your pension

The earlier you start your pension the better - that's because your investments have many more years in which to grow than they would do if you were making contributions close to your retirement.

So if you've been putting off starting your pension, don't delay any longer! And don't worry if you can only afford to put a little money aside because it's still worth doing. Find out more in Become a pensions expert in five days as well as The biggest financial mistake of all.  

So as you're standing round the bonfire this week, be sure to get rid of your bad financial habits! Good luck!

Get help from lovemoney.com

If you need a bit of help getting into good habits, we can help.

First, adopt this goal: Build up your savings

Next, watch this video: How to save when you've got no money

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

* Or a minimum cash payment of £5, whichever is the greater.

More: Protect your finances from your ex | The top 10 scariest scams