The beginning of a new year is the perfect time to sort out your finances.
Encouragingly, over half of us have resolved to cut back our spending or start saving more money. But for some people, tackling unsecured borrowing (such as credit cards, loans and overdrafts) is the number one priority this year.Becoming debt-free by 2012 might sound like a pretty ambitious target, even if you don’t think you’ll manage to pay off everything you owe in the next 12 months, following these Foolish tips will put you on the right road.
Write up a budget
Budgeting can be rather tedious, but you’ll need to do the basics first to give yourself the best chance of reaching that all-important debt-free day. You’ll need to figure out how much cash you have available each month to tackle your debts. Tidy up your finances and work out a budget. Remember you should only repay an amount that’s affordable. Don’t overstretch yourself.
Clear up your credit cards
One easy way to radically reduce the interest you pay on your debts — and then pay them off more quickly — is to move all of your credit cards onto a 0% balance transfer deal. You won’t pay a single penny in interest for the entire interest-free period, which will give you plenty of time to attack your balance.Then all you need to do is cut up your old cards and the new one to stop any further spending! If you prefer you can simply pay off the minimum monthly repayment on your card and put the maximum you can afford into a savings account. At the end of the interest-free period, you can clear the balance with the savings you have built-up throughout the year. You’ll also have earned a bit of interest over this time to boot. Just remember to transfer the money before your interest-free period runs out.
A clever way to settle your overdraft
If you tend to slip into the red every month, you could find your overdraft is costing you a small fortune. Many of the big banks charge between 10% and 20% EAR on overdraft lending, so this isn’t a cheap way to borrow at all. But did you know you could move your overdraft onto a Credit Card as well as your other credit card balances?
Once you’ve done that cancel your overdraft facility straightaway before temptation sets in. Pay off your personal loans. Repaying your debts as quickly as you can is the best way to reduce your interest bill. If you have a flexible loan your lender should allow you to make overpayments, which will reduce the term. Some loans can be fully repaid early without incurring any nasty redemption charges.
Don’t consolidate
It seems logical to move all your debts into one place and clear them with one easy-to-manage repayment. But don’t do this unless you can be super disciplined. Many have told us that consolidation loans often lead borrowers to run up even more debts in the future, so don’t fall into this trap.
The snowballing effect
If you can’t get all your debts onto interest-free deals, here’s what to do: Tackle what you owe more effectively by clearing your most expensive debts first, while making sure you keep paying the minimum repayments on your cheaper borrowings. So, for instance, say you have a credit card which charges 16% APR and one which charges 6%. You pay off as much as you can afford on the first card, but only the minimum amount required on the second. Once the first card has been cleared, use all the freed-up cash to tackle the second card. Any interest-free debts can be repaid last. This is known as snowballing as your repayments can be rolled up onto the next debt as each one is paid off. So that just leaves me to say best of luck with your resolution and here’s to a debt-free 2012! Or at least a start!
If your debts are becoming a worry, you can seek help and advice from many forums on the web. Or try a free and independent debt advisory service such as the CCCS.
Go Here For more information on DIY PPI Claims