New year money: how to regain control of your cash
Did your debit and credit cards take a pounding in the run-up to Christmas? Or maybe you really splashed out in the new year sales?
Some people could end up being saddled with debts until long after the festive decorations have been put back up into the loft, so now is the time to take stock and give your finances a new year workout.
Research released this week claimed nearly two-thirds of the UK working-age population – almost 27 million people – are beginning 2020 in debt. Of that total, 9 million have accumulated personal debt of between £2,000 and £10,000, while almost 5 million owe more than £10,000 in loans and credit, according to a poll conducted by the comparison website money.co.uk.
If you are in serious financial difficulty, seek free advice from an organisation such as National Debtline as soon as possible.
However, if your situation is not quite so precarious, there are things you can do to get your finances into better shape.
Cut your credit card costs
Many people with existing credit and store card debt could save hundreds of pounds, or even thousands, by transferring these balances to another provider offering a better rate. Play your cards right and you could pay no interest on your debts until well into 2022.
Balance transfers can be a very good way of saving money on existing debts. Your aim should be to have paid off all that you owe by the time the promotional period ends.
The weeks immediately after Christmas are typically the most popular for switching card balances: official industry data shows that in January 2019, consumers made 701,000 transfers, with just over £1.5bn moved in the space of 31 days. The average amount transferred over was £2,198.
Some credit cards are offering interest-free deals for more than two years. The main benefit of a 0% balance transfer deal is that all of your monthly repayment goes towards clearing the outstanding balance, and therefore the debt can be cleared much more quickly – but you do need to be disciplined. Also be aware that there will often be a fee to pay, which is typically a small percentage of the amount of debt being moved over.
This has always been a competitive market, but card companies have been tightening their purse strings a little of late. This time three years ago, you could get balance transfer deals offering 0% interest for up to 43 months, but currently the most you can get is 29 months.
Halifax and Sainsbury’s Bank are among those offering 0% interest on balance transfers for up to 29 months where the fee is 3% – that is, £30 per £1,000 transferred. Virgin Money and MBNA are offering very similar deals.
Let’s say you transfer a £2,198 balance over to the Halifax or Sainsbury’s Bank card. Assuming you are accepted, if you pay £78.07 a month for 29 months, you will clear the entire debt before the 0% offer expires, according to uSwitch (of course, you can always pay more than this). And those repayments include the £65 balance transfer fee you will be charged.
There are cards out there on which you pay a lower fee, or no fee at all. For example, Sainsbury’s Bank has another deal where you get 0% interest on balance transfers for up to 26 months where the fee is 1%. Under the same scenario, if you pay at least £85.38 a month for 26 months, you will clear the £2,198 balance within the promotional period. Again, what you pay back includes the fee, which in this case would be £21.
But with these deals, if you are late with a monthly payment or commit some other infraction that is not permitted under the small print, the 0% promotional rate will often be terminated immediately.
Get a better overdraft deal
Authorised overdrafts are designed for short-term borrowing, but the costs vary dramatically. Some banks have daily fees, some monthly; some charge interest, and some use a combination of these. But this is all changing as we speak – sweeping new industry rules designed to make overdrafts simpler and fairer will be in force by 6 April, and many banks are in the process of changing their pricing.
HSBC and Nationwide have both announced a new single rate for all overdrafts of 39.9% per year (HSBC’s takes effect on 14 March, while Nationwide’s is already in place), resulting in higher costs for some customers and lower costs for others. Over the coming weeks, other banks will reveal what they are going to do.
Many banks have overdraft calculators on their websites, so log on and compare what you would be charged by other financial providers.
However, you may want to wait and see what your bank and others announce before taking your custom elsewhere. Borrowing £500 via an authorised overdraft over 31 days would currently cost a Barclays standard account holder £23.25 (31 lots of 75p a day), while for a standard NatWest customer, it is £13.76 (£6 monthly fee and £7.76 interest) – but this will all change in the coming weeks.
At Nationwide, you would pay £14.45 in interest, while at the app-based bank Monzo, the cost is currently £15.50 (50p a day), though on 1 April, Monzo will ditch these fees and start charging everyone with an overdraft a rate of either 19%, 29% or 39%, depending on individual credit scores.
But can you switch your current account if you are overdrawn? The answer is yes, says the Current Account Switch Service (Cass). However, you will need to agree any overdraft you require with your new bank. Alternatively, they may be able to provide facilities to help you pay off your existing overdraft.
Consider consolidating your debts
If you are juggling various costly debts such as store card and credit card borrowing, you may be able to save money by consolidating them into one cheaper personal loan, where the monthly repayments remain unchanged and the debt is guaranteed to be gone by the end of the term. This is not an answer for everyone, but for some people, it will work.
There are best-buy personal loan deals available at less than 3% from the likes of Nationwide, M&S Bank, Tesco Bank, Sainsbury’s Bank and Zopa. However, only applicants with a clean credit record are likely to get these headline-grabbing rates.
The structure of a loan, with set monthly repayments, will appeal to some. But before taking the plunge, think about whether you really need a loan, and if another product such as a credit card might suit your needs better.
The website FairMoney.com points out that HSBC is currently offering personal loans starting at 3.3%, yet from March it will be charging 12 times that – 39.9% – on its overdrafts. FairMoney.com says that for some of the bank’s customers, taking out a HSBC loan would be cheaper than sitting on an overdraft. However, some would say these are quite different products, therefore it is a little like comparing apples and oranges.
Think about switching to a better current account
This week, HSBC kicked off the battle for bank account customers by offering up to £175 in cash in an attempt to persuade people to move to it using the switch service. The sum will be £175 if you move to the premier or advance account, or £75 for the bank account.
Meanwhile, M&S Bank is offering new customers a £100 M&S gift card when they switch to it using Cass, plus an additional £80 gift card after 12 months, but this deal ends on Monday.
There are, of course, various conditions attached to these.
You can find the original article here: https://www.theguardian.com/money/2020/jan/04/new-year-money-cash-debt
