Five ways to ditch your debt
If your money worries are keeping you up at night it's crucial you take action today. Here are five ways you can help ease your financial burden…
More than one million householders have used a credit card to pay their mortgage or rent in the last 12 months, according to a recent survey by Shelter.
However, borrowing money to repay existing debts is a dangerous game and if you continue to do so you could find yourself facing a serious debt disaster in the future.
If you are regularly using a credit card to cover basic housing costs, such as mortgage payments, food and household bills, it suggests your income is not enough to cover your lifestyle. If this is the case it's crucial you take action immediately before things get any worse.
1. Get organised
Your first step towards debt-free existence is to pull your head out of the sand and take a long hard look at your finances. Be brave! It's quite possible things aren't as bad as you think, and even if they are at least you now know and can start to do something about it.
Tackle any stacks of unopened paperwork and try to create some kind of order. If you're a whizz on the computer you might want to create a clever spreadsheet, but labels and colour coded folders worked just fine for me.
This exercise will also help highlight where you might be overspending and places in which you could realistically cut back. It may be worth taking a look at my article 'Six ways to reduce your everyday expense' for top tips on how to cut back.
2. Switch to a 0% credit card
Balance transfer credit cards have been around for a while now, but if you have yet to take advantage of one it's a good idea to start now.
The interest rate charged on an average credit card is usually around 16 - 17% APR (typical). Therefore by shifting your debt onto a 0% credit card you're not only saving a packet in interest charges, you are also significantly reducing the life time of your debt.
However take care to repay your balance before the interest free offer period expires or you will be back to square one paying an expensive interest rate on your debt.
At 16 months, the Virgin Credit Card currently offers customers the longest 0% deal around. Although, keep in mind that there is a handling fee of 2.98%.
If you already have, or have had, an MBNA credit card your next best option is probably the Santander Credit Card which offers 0% on balance transfers for 15 months and charges a 3% fee.
3. Switch to a 0% overdraft
Being regularly overdrawn can get very expensive very quickly. It's not unheard of for banks to charge anything up to 20% EAR for an authorised overdraft - a less than competitive deal.
It is therefore a good idea to consider switching to a current account with a 0% overdraft. This will eliminate your interest charges for a set period of time, and allow you some breathing room to get yourself out of the red.
Right now, Alliance and Leicester are offering customers a fabulous deal. If you switch to their Premier Current Account today, not only will you enjoy a 0% overdraft of up to £2,000 fixed for 12 months, you will also bag yourself £100 cashback too.
However, be aware that Alliance and Leicester is likely to run a credit check before offering you a 0% overdraft and the size of overdraft you receive will depend on your individual circumstances.
4. Pay your debts one at a time
If you owe money all over the place, it is a good idea to 'snowball' your debts.
This is where you concentrate on clearing your debt with the highest interest rate first. Once you have successfully achieved this, you can then start chipping away at the next balance and so on and so forth.
This should help you become completely debt-free much faster than if you only pay a little bit off each debt every month.
However, you must make sure you also keep up with at least the minimum repayments on your other credit card and loans. If you don't, you could be hit with nasty late payment fines.
It is also a sensible idea to use any savings you have stashed away to pay off your debts. This is because the interest rate you're paying on your debts is usually much higher than what you're earning on your savings. However, this is your decision to make as some people prefer to have a cash cushion to fall back on in case of an emergency.
5. Ask for help
Finally, if you feel your debts are slipping out of your control it is vital you seek professional help immediately. Free, independent organisations such as Citizens Advice, National Debtline and the Consumer Counselling Service will be able to offer you guidance and advice.
What's more, don't be embarrassed to talk to your friends and family about what you're going through. The chances are they have been through something similar in the past and could be an invaluable source of support.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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