Understanding your energy usage
Worried about debts mounting up? Here's some hacks to help you slash what you owe.
For some of us, lockdown has been an opportunity to bolster bank balances, as our ability to spend has been curbed quite considerably.
But for others, it’s been a very different story.
Some people were hit particularly hard by the Coronavirus crisis – including those put on furlough or made redundant. As a result, many individuals may now find themselves mired in debt.
But if you are up to your ears in lots of different types of borrowing, we’re here to help you get your finances back on track.
Begin by sitting down and working out just how much debt you have on credit cards, personal loans, overdrafts and so on – and at what rates.
If you have lost track of who you owe money to, it’s worth checking your credit report. You can do this with our Credit Monitor tool. We use data from credit reference agency, TransUnion, to provide your score and report via Credit Monitor.
By seeing your credit report and credit score, you can see where you stand financially. You’ll also get tips on actions you can take to nurture your rating.
A key step in taking control of your debts is drawing up a budget.
Once you’ve worked out how much money you have coming in and going out, you can see more clearly how much you have to spend, how much you have to save, and how much you have to pay off your debt.
When looking at your borrowing, you should always prioritise paying your rent mortgage and energy bills ahead of secondary debts, such as overdrafts, credit cards and personal loans.
If you’re spending more than you earn, see where you could cut back – even just for a few months. You may be able to make savings right away by switching to better deals on outgoings such as energy bills and broadband.
With savings rates at rock bottom, now could be a good time to use some of your nest egg to pay down your debts.
This can make good financial sense given the rates you are paying on cards, loans and overdrafts will typically be much higher than the rates of interest you are earning on money you have squirreled in savings accounts.
Your focus should be on clearing the most expensive debt first – but be sure to check for any penalties.
And don’t deplete your savings completely. It’s vital to have an emergency fund, should the unexpected happen. As a rule of thumb, you should look to have the equivalent of between three and six months’ worth of living expenses set aside in a rainy day account.
This involves you drawing up a list of all your debts – apart from your mortgage. You then focus on allocating money to make the minimum monthly payments needed on each one. If you have any disposable cash left over, you use this to pay off the debt with the highest rate of interest. You continue to do this until all debts are paid off.
The theory is, that by prioritising the most costly debts, you will have to fork out for less interest in the long run – meaning you should clear what you owe more quickly.
If you are paying interest on your credit card debts and finding them hard to manage, you can potentially save hundreds of pounds by switching to a 0% balance transfer card.
Shifting your existing balances onto one piece of plastic with a long interest-free period means you can pay off your debts much faster.
Card companies are getting more generous and the length of 0% deals are nudging back up to pre-pandemic levels. Right now, you can find cards offering a huge 29 months interest-free.
But before signing up to any balance transfer deal, check for balance transfer fees. These can range up to 3% of the balance you want to move. On a debt of £4,000, you could end up having to pay £120.
Make sure you’ve done the maths.
While it’s vital to make at least the minimum payment each month, ideally, you should strive to pay more than this. This will mean you pay a lot less interest. It can also help you clear your debt more quickly.
Equally, if you can pay off what you owe before the 0% offer runs out, you can avoid paying interest altogether.
If you have lots of different debts across overdrafts, credit cards and other forms of borrowing, you might want to consider a debt consolidation loan. This means you will only have one monthly repayment to remember, making it easier to keep track.
Rates on personal loans are currently very competitive. You may be able to borrow £10,000 over five years at a rate of around just 3%.
When applying for a loan, remember to make use of an eligibility checker tool. This will give you an indication of your likelihood of being accepted, without leaving a mark on your credit file.
There’s no point taking out a loan to repay credit card debt if you hang on to the cards that caused the issue in the first place.
If you find it hard to resist the temptation to splurge, it might be worth taking a pair of scissors to your plastic.
That way, you won’t be able to go on a post-lockdown spending spree, and won’t be at risk of running up more debt – helping you stay on track.
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