Can I pay less for debt?Tips for managing and reducing debt
Credit cards, loans and overdrafts, when used sensibly, can be a very valuable way to enable us to manage our finances. However, it’s important to minimise their cost and this is particularly relevant if you have accumulated debt across multiple credit cards and loans.
We recognise, however, that reducing debt is not always easy so here are some general tips that may help. Additionally, don’t forget to refer to the Money Advice Service, an impartial government backed site with great money and debt advice.
Consider whether there are alternatives to using a credit card or loan? Sometimes it may be best to use existing savings or to save up for a big purchase, although of course this may not always be possible.
Setting up your credit card to be automatically paid off in full each month can help avoid the build up of credit card debt. You need to make sure that there’s enough money in your current account to cater for this.
If you can’t pay off your credit card in full, then at least make sure you pay more than the minimum requested amount to start to reduce the total credit card balance.
Make use of online banking, mobile banking and text alert services to keep track of your balances. This can help you to take action if your current account is about to go overdrawn.
If you believe that there may be occasions when you will go overdrawn, then speak to your bank about arranging an authorised overdraft. This can provide a buffer against going into an unauthorised overdraft position. There are typically costs attached to both types of overdraft but costs are often considerably higher where the overdraft is unauthorised.
If you have debt across various credit cards, loans and overdrafts, then it may be worth consolidating your debt onto a single personal loan. Interest rates on loans may be lower than on credit cards and overdrafts but they have fixed payment schedules, so you need to be confident that you can meet those monthly payments.
Alternatively, if your wallet or purse is weighed down with plastic, then it may be time to reduce all your credit and store cards down to one credit card.
List your current debt details – what is your total debt balance and total monthly debt payments? (Remember to include debt from store cards and payday loans)
Consider whether you can immediately pay off some of your debt? It may be cost effective to pay off some of your debt from spare savings and/or investments.
Consider consolidating your debts into one personal loan. Use a personal loan calculator to check whether converting all your debt into a single loan will reduce your overall monthly payments. Remember, though, that loans have fixed monthly payment schedules.
Alternatively, consider consolidating all your credit and store card debt into a single credit card. Switching to a 0% balance transfer credit card could buy you some time to reduce or eliminate your card-related debt.