If you've got a credit card, the last thing you want to be doing is pay more interest than you need. Yet that's exactly what thousands of people are doing across the UK, and they're missing out on some great deals in the process.
Research from TSB reveals that an estimated 590,000 Brits who hold at least one kind of interest-bearing debt are paying more than they need to by not moving to a better deal, and are paying a collective £664 million too much every single year as a result – or £1,134 per person.
This is because an estimated 5 million British adults owe between £5,000 and £25,000, yet over half a million could be eligible to move to a personal loan with a much lower rate of interest. Failing to consolidate – and paying less in the process – means Brits are overpaying £55 million every month to stay with their current credit agreements, and as a result are paying three times more in interest than if they shopped around.
The research went on to reveal that, while 13% of borrowers are simply unaware of their options or where to go for more information, 49.9% admit to being victims of the 'Ostrich Effect': these borrowers prefer to bury their heads in the sand and actively avoid thinking about money, but in doing so, they're paying far more (on average, £200 more) than other indebted Brits.
This is because a reluctance to address their debts or shop around for a better deal means they pay far higher interest rates than other borrowers – 14% APR compared with the average of 10% APR – and also typically accrue more debt than others.
Then there are the 35% who identify as 'pessimist' debtors, who don't shop around because they don't think they'll be able to find lower rates than they're currently paying. However, in reality they're just as likely to be able to find a better deal as other debtors, so they again could end up paying far more money completely unnecessarily.
"There are times when we all need a little extra financial support, whether it's to clear more expensive debts, pay bills, make some much needed home improvements or replace an old car," said Nick Smith, head of Loans at TSB. "The consumer credit industry offers people a helping hand when they need it most, but it is important that people know all of the options available to them to find the best deal for their needs and be able to borrow well.
"However, our research shows that people shouldn't stop shopping around for better deals even after they have committed to borrow. We urge people to continue to take just 30 minutes out on a regular basis to review their debts as they may be one of the half a million Brits eligible to refinance to a cheaper deal, and pay less for their debts, which will help them become debt-free sooner.
"Burying your head in the sand about debt won't make it go away – and it can end up costing a lot more than you bargained for. We encourage borrowers to understand how much they are paying and for how long so they can consider their options."
If you've got credit card, store card or loan debt, it's worth taking time out to see if you could benefit from a cheaper deal. Consolidating can often be a far more cost-effective way to clear your debts – after all, it's possible to find a personal loan rate that's as low as 2.9% APR, while typical credit card interest rates are in the region of 18% APR, so the savings could be marked.
You may even be able to benefit from a 0% interest deal: if you've maxed out a credit card, consider switching the balance to one that offers 0% on balance transfers, thereby giving you plenty of time to clear your debt without needing to worry about any interest whatsoever (just make sure to stop spending on the previous card!).
Alternatively, if you've got a big purchase coming up and think you'll need to borrow, you may want to put it on a 0% purchase card – competition is rife, and given that the longest term available has just hit a new record, it could be a great time to consider your options. Whatever you do, don't stick your head in the sand, and hopefully you'll soon stop paying more than you need.
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.