Six easy ways to reduce your debt, from cut loans to flash credit cards
PRICES are skyrocketing from gas pumps to supermarket checkouts, but the pressure on the cost of living is even worse if you are already in debt.
High interest rates mean you risk spending huge sums on repayments without reducing the amount you owe.
Rosie Murray-West reveals smart switches to clear debt faster and potentially save thousands of dollars. . .
LIGHTEN YOUR LOANS
IF you took out a loan a few years ago, you may be paying more than expected.
Using a new loan at a lower rate to pay off an old one can sometimes make sense.
M&S Bank offers loans with APRs below 4%, compared to an average of 7.4% in June 2020.
That would mean saving over £340 a year on a £10,000 loan.
But you’ll need to consider the settlement fees that most lenders charge if you cancel your loan early.
This can add up to two months interest, or £122 in the example above.
Not everyone gets the rates advertised by lenders, as these are reserved for those with good credit.
Check which loans you are most likely to get without hurting your score by using an eligibility tool such as the one on moneysavingexpert.com.
RELEASE OF EXERCISE EQUITY
OLDER homeowners who have borrowed against the value of their home with a capital release plan can sometimes see massive savings by switching if they entered into their contract more than three years ago.
Interest rates on equity release plans have dropped dramatically in recent years.
The average switcher saved around £52,000 last year, according to capitalization adviser Age Partnership.
Plans often come with steep prepayment charges, but the switch may be worth it if the savings are greater.
Always consult an independent stock release adviser registered with the Financial Conduct Authority.
REDUCE YOUR MORTGAGE RATE
ALLOWING your mortgage to switch to your lender’s standard variable rate (SVR) at the end of a fixed or trailing agreement could cost you thousands of dollars every year.
The average SVR, according to Moneyfacts, is now 4.91%, while the average two-year fixed rate is 3.25% and five-year 3.37%.
For a £250,000 mortgage, you could save £2,760 a year by switching from a typical SVR to an average two-year solution – and some available deals could save you even more.
Your current lender will also offer you new rates when your agreement expires, so check them out.
If in doubt, take advice from an independent broker.
BLITZ CREDIT CARD BALANCE
Don’t let credit card debt linger. If you only pay the minimum each month, it could take decades to clear.
Making just the average minimum monthly payment of 2.5% on a £5,000 balance means it would take you almost 38 years to pay off and cost almost £15,000 in total, with a typical interest rate of 22 %.
Upgrade to a balance transfer credit card for an interest-free window of up to 34 months.
Divide the total debt into monthly payments and set up direct debit to ensure you clear the balance during this time. If that’s not possible, try again to switch to a new card.
But not everyone can get the best balance transfer deals because they require a great credit rating.
Rachel Springall, from the comparison site moneyfacts.co.uksaid that even if you can’t make a 0% deal, you can still save thousands of dollars by moving debt to a low-interest card.
Find out which cards you’re most likely to get with the eligibility check at moneysavingexpert.com.
When you transfer your debt to one of these cards, you normally pay a one-time charge of two to three per cent of the balance, or £100 to £150 if you transfer £5,000.
ELIMINATE OVERDISCOVERY FEES
Dipping into your overdraft can be one of the most expensive ways to borrow, with some banks charging 40% interest, almost double the average credit card rate.
Move to a bank with free overdraft. Nationwide’s FlexDirect pays you up to £125 to change and has an interest-free overdraft for the first year. The amount you can borrow depends on your situation.
First Direct’s first account pays Switches £125 and offers £250 free overdraft. Both providers have online eligibility checkers so you can see if you’re likely to qualify – important if you’re already overdrawn.
To pay off larger overdrafts, a money transfer credit card might give you interest-free respite, but beware of fees.
“INTEREST-FREE CREDIT CARDS LET ME BORROW TO GROW MY BUSINESS”
HYPNOTHERAPIST Emma Gosling borrowed £5,000 on a credit card in 2019 to pay a mentor to help her grow her business.
But with an interest rate of 19%, the costs could have skyrocketed.
The 47-year-old from St Albans, Herts transferred that debt to two new credit cards, a move that gave her 27 months interest-free.
She has now cleared the debt without paying a cent in interest.
“I’m glad I used the cards,” Emma said.
“I couldn’t afford to pay for the mentorship up front, so it was a good fit.”
ENERGY AID RISK FROM TENANTS
MORE than half a million tenants may not qualify for government help with their energy bills, warns Citizens Advice.
The charity estimates that one in eight tenants of private landlords, or around 585,000 people, could be affected.
Tenants cannot claim the £150 warm house rebate if their landlord is managing their bills, and they could also be denied the government’s £400 energy grant in October.
You can only receive cash assistance if you pay your energy supplier directly.
You can try talking to your landlord or managing agent of the shed to see if they’re willing to pass on some or all of it, but there’s no legal obligation to do so.
The charity has seen cases where vulnerable tenants have been denied the long-standing Warm Home discount.
A man with mental health issues who had less than £10 on his prepayment meter could not claim payment as he was not the named bill payer.
Dame Clare Moriarty, chief executive of Citizens Advice, said: “We are concerned that many tenants will fall through the cracks, putting them at risk of running out of money to help meet bills that soar.”
Tenants who pay their energy bills directly have the right to choose their supplier and have a smart meter installed, but must notify their landlord or rental agent.
If your energy bills are included in your rent, this should be stated in your tenancy agreement, but there may be a “fair use” clause limiting how much you can use.
If your landlord pays for your energy and then resells it to you, he can only charge you for the units of energy you have used and your share of the permanent charge, plus VAT.
A government spokesperson said: “We want energy bill support payments to go to those who end up paying the bills, including tenants in private rental accommodation.
“We are working closely with consumer groups and suppliers to ensure this happens so that from October people receive the £400 deduction they are entitled to.”
THOUSANDS of women could lose huge sums as a result of new state pension mistakes, a former minister has warned.
Sun Money has already called on the government to speed up efforts to reimburse around 134,000 pensioners, mostly women, who missed around £1billion due to earlier mistakes.
The Department for Work and Pensions is trying to identify those who were underpaid and fill the gaps, but 40,000 pensioners are thought to have died without getting their due.
The latest mistakes uncovered by former pensions minister Sir Steve Webb, now a partner at consultancy LCP, affect women on the new state pension who previously paid a reduced National Insurance rate known as ” married woman stamp”.
They have the right to claim part of their state pension on the basis of their husband’s contributions.
But some have been wrongly told they have no rights when in fact they owe more than £4,000 a year.
If you have paid the married woman’s stamp, you can check your rights by calling The Pension Service on 0800 731 0469.