As the summer holidays come to an end, the children are heading back to school and we are all returning to our regular routines, it is time to take stock of our holiday spending and pay the bills. For those of us who spent a bit more on credit than we can cover straight-away, here are some personal finance tips, based on our latest market data, to help you on your way.
If you've put more money on your credit card than you can comfortably pay off right now, you have a few options to make sure you pay the least interest while working off your debt. Transferring your money on to a top balance transfer card with a competitively long introductory interest-free term would allow you to pay back the debt you've accumulated even before any interest can take hold of it.
But before you get carried away, make sure to weigh up all the options. Charlotte Nelson, finance expert at Moneyfacts, calls for some caution: "With a record 41-month introductory term available, borrowers now have even longer to pay off their balance. However, these deals are generally accompanied by large balance transfer fees. For those with smaller debts it may be wise to take advantage of 19 deals with absolutely no balance transfer fee, allowing them to move the debt at no cost."
If you've managed to accumulate a rather large amount of debt, an alternative option would be to consolidate all of it into one easier-to-manage unsecured personal loan. Charlotte explains that "using an unsecured personal loan for debt consolidation could save a large amount of cash. For example, if you had £10,000 on credit cards at 18.9% APR and made a minimum payment of 1% plus interest or £180 (whichever is higher) each month, you would be charged £7,727 in interest and retain the debt for almost eight years. If you opt for the best loan rate instead, at 3.2% APR fixed for five years, you would only pay out £822.20 in interest."
Avoid debt by saving in advance
Once you've managed to release yourself from any debt, it might be intimidating to look at your next summer holiday and imagine the debt you may once again rack up. Even if you don't have any debt, it's still a good idea to save for the future so that you can afford the holiday you fully deserve.
One way to do that is by setting up a regular savings account. This would get you into a long-term habit of saving cash every month, with the added bonus that regular savings rates often beat their more flexible rivals. Indeed, the average regular savings account currently pays 2.15% in interest, which dwarfs the 0.47% paid on the average easy access account.
Another way to save and even gain money is by switching your current account, especially if you're paying a monthly fee or getting no interest on your current one. Many deals come with cash incentives for switching, while others boast in-credit interest rates that far outweigh those offered by savings accounts at the moment, not to mention the cashback and rewards schemes that can be found. Charlotte says: "Loyalty does not pay when it comes to your current account provider. With 16 accounts offering a switching incentive, and the added convenience of the seven-day switching service, it is time to get something for nothing."
To gain even more cash, consider a cashback credit card. With the average cashback amount on cashback credit cards standing at 2.03% today, these would be a great way to earn tax-free cash on your everyday spending, especially if you're considering a large purchase or doing your Christmas shopping. However, these cards are generally not recommended for people who only use a credit card occasionally, as they would lose out on the cashback benefits. They should also only be considered by those who can pay off the balance in full each month, otherwise the interest payments would negate any cashback earned.
Finally, now would be a great time to improve your mortgage rate, and don't forget to save the money you gain from lowering your monthly mortgage bill. As you may be aware, the base rate cut to 0.25% has caused many mortgages to be reduced to record low rates. While this may tempt people to stay and wait for their Standard Variable Rate (SVR) to reduce as well, this is not advised. Charlotte says: "Fixed rate deals are at all-time lows, so if you are coming to the end of a fixed term, now is the perfect time to look for a better offer. In fact, by opting for the average two-year fixed rate of 2.44% instead of staying on the average SVR of 4.71%, you would be £2,933.28 better off (based on a £200,000 borrowing amount over 25 years on a repayment only basis) after just one year."
Compare the top balance transfer and cashback credit cards to find a deal that suits you
Have a look at our list of top current accounts to see what you could gain by switching
Check out the top fixed rate mortgages to figure out how much you could save
Use the money gained by the above deals to open an attractive savings account to get yourself ready for next summer
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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