| |
Credit Cards -
The First Steps to Paying Off Debt
|
|
| |
| |
It was recently announced that this year's debt freedom day was set to be March 7th, over a month later than last year’s date of February 1st. Debt freedom day is the calendar date on which Brits have earned enough to pay off all the interest on their credit cards and personal loans (not the actual debt itself) and the further back debt freedom day falls, the more Brits are getting themselves into the red.
If you are in debt, it can seem like an impossible task to get back into the clear. There are, however, ways you can effectively pay off your debt and some of these are highlighted below. At this time of year, people are focusing on paying off their Christmas debt and banks will take advantage of this by advertising certain credit card and personal loan deals. However, the deals you see on leaflets and television commercials are not necessarily the best deals you can get. If you’re looking for credit, whether in the form of plastic or the lump sum of a personal loan, you don't necessarily have to go to the bank where you hold your current account. As with any financial service, it is important to shop around and find the deal that is right for you and your economic situation.
When planning how you are going to pay off any debts, it is important to make a list of what you owe and to whom, especially if you have multiple debts from different lenders. It is not going to help the situation if you think you are on top of all your repayments then realise you have forgotten about a credit card and have to start all over again.
When paying off debts, focus on the loans or cards that have the highest interest rates first as these are the ones that are going to cost you the most money over time. A lot of people find it useful to take out a low interest loan to cover all their debts at once so are then left with one repayment each month. Due to the recent credit crunch, companies are a lot less willing to lend money with a low interest rate. The interest rates on loans have not changed in the last three months, but especially since the Northern Rock crisis if you have even a slight black mark on your credit history lenders will most likely only give out a loan at a higher interest rate.
Perhaps the best way to start paying off debts is with a credit card. There are interest free deals available although you will probably have to pay a transfer fee. For instance, Virgin, Egg, Lloyds TSB, Mint and Abbey offer 0% interest on balance transfers for over 12 months, where you will have to pay a fee of up to 3% (depending on the lender) of the amount you choose to borrow. If you are unable to find or get a 0% interest deal, then the next option is to look for a service that offers a cheap balance transfer rate. Here, HSBC offers 2.9% for the first 2 years, with a 2.5% transfer fee.
Even HSBC, however, has admitted that it is being far more discerning now with the customers it will loan money to. Whereas the bank used to approve approximately 2 out of 3 applications, now that number has fallen to around a half, favouring those who already hold a current account with them.
If these options are not available to you, it might be worth considering one of the loans mentioned above. If you opt for a fixed rate loan, you are then given the added security that you will be paying off a set amount for a set time period, meaning a debt free future is in sight.
|
|
|
| |
|
|
|