Today marks the start of Debt Awareness Week, which coincides with the one year anniversary of the first lockdown in England and Wales, the financial fallout of which has seen many consumers falling into debt.
In fact, StepChange, the debt advice charity behind Debt Awareness Week, has acknowledged the impact the pandemic has had on people’s finances and the fact that many are worried about the debts incurred over the last 12 months by encouraging consumers to use this week to take the first steps towards getting debt help and talking about their financial problems.
“This Debt Awareness Week, we’re focusing on breaking down the stigma that surrounds debt, opening up the conversation and encouraging people to take #TheFirstStep towards resolving their money worries,” explained Richard Lane, director of External Affairs at StepChange.
“With the week also marking a year since lockdown began in England and Wales, and 2.5 million people facing a financial crisis due to the impacts of Coronavirus, it’s more important than ever that households across the country know where to get help. You are not alone.”
Those struggling with debt should consider seeking help and advice from a free debt charity, such as StepChange, or from Citizens Advice.
For those who have incurred extra debts over the last year, but who are able to manage their debts, here we’ve put together some steps consumers can take to reduce and clear their debts.
Credit card debt is one of the most common forms of debts, but the interest charged on credit card outstanding balances can make it a difficult debt to clear. One way of helping to clear credit card debt is by transferring the balance to a 0% balance credit card, which provides an interest-free period in which to significantly reduce or clear the debt altogether.
“Consumers comparing 0% introductory balance transfer credit cards may well be comparing the deals with the longest interest-free term, however there are also fee-free options to consider,” said Rachel Springall, finance expert at Moneyfacts.co.uk. “In recent months, some providers have dropped their fees, which means borrowers could save on the upfront cost of moving their debts and in fact there remains some fee-free options too. Ulster Bank offers a fee-free 18-month 0% introductory balance transfer card and in just one year, borrowers could save almost £300 in interest moving from a card charging interest*.”
For more information on clearing credit card debt, read our five tips on clearing credit card debt quickly.
Personal loan rates have remained competitively low over the last 12 months, which could mean a good option for consumers who owe money to various lenders may be to consolidate their debts into one loan.
Springall added: “Consumers who want a fixed term to repay debt and perhaps consolidate different debts could choose a low-cost unsecured personal loan to do so. Over the past three months, some providers have cut rates on their lower tier loans, and those looking to borrow £5,000 over three years can find rates as low as 3.4%. At the moment, the lowest rates on offer are from Tesco Bank and Virgin Money that both charge at 3.4%, MBNA Limited at 3.5%, John Lewis Financial Services at 3.6% and Hitachi Personal Finance at 3.7%. It’s important to keep in mind that out of all successful applicants, a minimum of 51% are offered the advertised rate, and that early repayment charges may apply if customers do switch their loan.”
Over the last year, many banks have overhauled their overdraft charges, making it cheaper for some borrowers who go into the red, but more expensive for others. As such, consumers should check their overdraft charges and consider switching bank accounts if there are more cost-effective options available.
“Overdraft charges have changed considerably over the past 12 months due to a ban on flat fees, so it’s well worth consumers reviewing their account even if they are not currently in the red,” explained Springall. “If a customer were in the red by £500 for 30 days with the Santander Everyday Current Account, it would cost them £14.01 in charges. However, if they instead had a Current Account with Starling Bank, they would have paid £5.81 in charges. An alternative to clear an overdraft would be to use a money transfer card and this may be more suitable for consumers concerned they will be unable to get back into the black quickly. The lowest fee charged on an interest-free money transfer deal comes from the Capital One Balance Transfer Mastercard, with its 12-month introductory for a fee of 2.90%, so a £500 transfer could cost £14.50.”
To find out more about reducing and clearing debts, read our guide 12 steps to get debt free.
*Credit cards – Credit card repayment based on £3,000 purchase, based on an interest rate of 18.9% APR, minimum fixed repayment of £274 (thereafter a minimum of 1% plus monthly interest or £5, whichever is higher), costing £292 in interest over one year. NatWest Balance Transfer Credit Card Mastercard, 18 months interest-free balance transfer deal with no balance transfer fee.
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