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The four methods below if used correctly, should significantly cut the cost of your debts. If you’ve used our Free Budget Planner and followed the steps in our previous post Budgeting for Beginners in 4 Simple Steps to assess your finances, you should have a full list of all of your outstanding balances. If not download it below and complete section 3 listing all of your debts, then follow the steps below to see how much you can save.
Before You Start
Check your credit score. The main reason for this is that it might prevent you from taking full advantage of any lower interest rate deals we cover below. There may be incorrect or outdated information you need to rectify or challenge before you start the process. If you want to check this for free, Experian offers a free subscription to your credit score. Alternatively, ClearScore offers a similar service which is also free for life.
Method #1 – Transfer Credit Card Debt to a Lower Rate or 0% Interest Card
If your credit score allows, you should be able to transfer existing credit card debts to one of the many interest free balance transfer cards available on the market. This means that you will totally eliminate the interest on that debt and 100% of your money will go towards reducing the balance. Balance transfers are also available for those with less than perfect credit scores, it’s just that you’re less likely to get a 0% deal.
Method #2 – Shift Your Credit Card Balances Between Existing Cards
Your current card providers may offer cheaper interest deals for transferring debts to an existing card – they sometimes charge a fee for this so be sure to check first, especially on smaller balances as this might wipe out any benefit you get. This is a great technique if your credit score prevents you from accessing the 0% deals we mentioned in Method #1.
Method #3 – Use Your Emergency Fund to Pay Off Debt
If you have savings put away for a rainy day, consider using this cash to pay of as much of your borrowing as possible. Its likely you’re only getting 1% interest on your savings and paying much higher rates for borrowing. Much like the methods above it’s all about comparing interest rates and getting the most out of your money – again check for any fees which may be incurred.
Essentially, you’re sacrificing a pitiful return on your savings to pay a lot less interest on your borrowing. This is especially useful if you have credit card debts. If the worst happened and your car needed some emergency repairs, you’d be able to pay this with your credit card instead of your savings, so you’d end up no worse off. If there was no sudden emergency, you’d end up much better off.
Method #4 – Remortgage
If you have a variable rate mortgage or your fixed period is coming to an end, then it’s a good time to look for a better deal elsewhere. Rates can be fixed for as much as 10 years to protect against rising interest rates but beware the longer the term, the higher the early repayment fees. This could catch you out if circumstances change further down the line.
Conclusion
The above methods can be used to cut the cost of your debts and make everyday life a little less painful. Combine these with the spending tips you’ll find in our money saving section and ways to save on household bills and you’ll be in a much better position overall.
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