New year financial boot camp: lower your monthly debt payments

Are you ready to kick start the new year with a bang?

To help you do just that, I have put together a month long financial boot camp, with one or two tips per week and a call to action. Together, we will review several aspects of your financial life to make sure you start the year in good shape.

Last time, we looked at your utility bills and I put together a detailed guide about how to lower them. Today, let’s talk about how you can lower your monthly debt payments.

 

 

 

Are you paying too much?

 

Unless your mum lent you money at 0% APR, you probably are. Let’s figure how much and how we can change that.

 

 

Checking all your debt

 

We are going to leave the mortgage for another chapter, as it requires quite a bit of work on its own, and focus on consumer debt, loans, credit card balances. Checking your last statements will tell you how much you owe, and what the rate is on each debt.

You can figure out the average weighted interest rate, which is the average rate you are paying on your overall debt, depending on how much debt you have at each rate.

Sounds complicated? Not so much.

 

If you have two cards, A and B,

Card A has a 0% rate and £1,000 balance

Card B has a 20% rate and £1,000 balance

Your average interest rate is 10%.

 

But what if the cards have different balances?

 

Card A has a 0% rate and £1,000 balance

Card B has a 20% rate and £3,000 balance

Your average weighted interest rate is 15%. Since you have more debt at 20% than at 0%, your average interest rate is higher.

 

Those calculations will help you if you are thinking about debt consolidation. If you are offered a rate below your average weighted interest rate, you will save money by consolidating, however, you will also save by keeping all the debts with lower interest rates out of the consolidation.

 

Checking your credit score

 

Before you start negotiating your debt with your creditors, it is important to know how much power you have in the negotiation. If you have an impeccable track record, your credit score must be good or excellent, and you have a strong position to ask for a rate discount, as it is easy for you to leave and take your business elsewhere.

If you have bad credit, it is a bit more complicated, but it can be done.

So check your credit score to know where you stand. Most agencies will provide a free credit score, just remember to unsubscribe before the 30 day trial ends or your card will be charged with a year membership.

 

 

How to talk to your lending company

 

It is pretty simple, as for the utility bills earlier this week. Be nice and polite, call customer service and explain that (competitor) has a lower rate for (loan, balance transfer, debt consolidation). Do your homework before and have it written down. Then tell them that you would like to know if they can make you a better offer, otherwise you would switch. If they are hesitant, tell them that you are struggling to make your monthly payments at that rate. It cost them a lot to hire collection agencies and track bad debtors, so they should be willing to help you out. If they still say no, ask to talk to retentions, who is the service in charge of retaining customers like you. Tell them you will leave unless they give you a better rate.

Still no luck? Look into other options with other companies. Do not worry, they will not close your card until you specifically ask them too. Just hang up and say you’ll think about your options.

If you have student loans, you could try to refinance them with reputable companies. Be sure to know the terms of refinancing and what benefits you may be giving up. Also, be sure to watch out for student loan scams, as there are tons of people out there who are trying to make some quick money by taking advantage of others’ naivety.

 

 

 

 

Double dipping

 

If you are on the market for a new loan or credit card, you should check Quidco on top of that, to see if you are eligible for some cash back.

There are several banks offering cash back to get new customers.

 

 

Action for the week

 

1. List down all your debts from your last bank statement or look through your mail. You can have any or all of the following

Credit card

Store card

Personal loan

Student Loans

Consumer loan

Car loan

Family/Friends loan

Mortgage (we’ll leave that one for next week)

 

2. Compare the rates. Go online and look for cheaper loans and cards. Then, go to Quidco and check for additional cash back. Check with your high street bank, they are not always the most competitive but sometimes have good deals for existing customers. And they know you. Sort of. They may overlook a poor credit score when a new lender won’t.

 

3. Check 0% balance transfers. If you have good credit, that is one of the easiest way to lower your debt payment. For a 3-4% fee, you can transfer all or part of your debt there and have up to 18 months to pay the balance off. Make sure you do pay it off during that time, or switch to another balance transfer, because those cards have really high APRs once the 0% deal expires.

 

4. Call your current lender(s) and ask for a discount. Otherwise, move on with the switch.

 

5. Drop me a line and let me know how much you saved 🙂

 

It may not be much, but on a £1,000 balance held for a year at 20% or a 0% deal with 4% transfer, you will save £160. Again, a pretty good pay day for just a bit of research and one phone call. Good luck!