Borrowing money isn’t something many of us like to do, but when it comes to a few things in life – such as getting a mortgage or buying a car – then taking out a loan is often the most sensible course of action. You just need to do it carefully!
The key to avoiding the debt monster is to get a good deal in the first place, and then set up a repayment system that enables you to be debt-free as quickly and as easily as possible. And with these top tips, you’ll be able to cut the cost of borrowing in no time.
Shop around for the best rate
Your bank may have sent you a leaflet about taking out a loan, but do they offer the best deal? Rates vary enormously – as do the terms and conditions.
How long you have to pay back the loan for is crucial – a longer term will give you smaller repayments now, but consider whether you still want to be paying this back in 10 or 15 years’ time?
Increasing your mortgage, or a remortgage, could be a cheaper way to borrow than a personal unsecured loan. Talk to your mortgage company to find out your options.
Credit cards are not a good way to borrow substantial amounts of money in the long term. If you do have credit card debt, try to switch it to a low or 0% rate.
Check finance deals
A furniture store or car showroom may make a purchase easier by signing you up to their own finance deal – or offer a ‘buy now pay later’ arrangement – but always check the small print and work out exactly how much you will have to repay overall.
You are not obliged to use their finance deal and it could work out much cheaper to get a low-rate loan from your bank instead. Some in-store finance deals are more expensive than credit cards too.
Only borrow as much as you need
It can be tempting to borrow a little bit more as a ‘cushion’ to help you through the next few months, or to treat yourself.
Think instead about how much repayments will be each month and if they are affordable. It’s no use borrowing more if it’s the only way you can afford the repayments in the first place.
Stick to a clear budget of how much you need and how long for.
Combine your debts at a low rate
Keeping track of your loans can be a bit of a juggling act, but it’s important to stay on top of them so you know when, what and how much needs to be paid. To make this easier, look at ways that will allow you to combine your debts.
Combining multiple high interest rate debts, such as credit or store cards, into a single lower interest loan will mean you pay less interest – and you have a repayment plan.
Make repayments a priority
In order to pay off your debts quickly and with less stress, you need to make them a priority.
Make sure the first transaction that comes out of your bank account after pay day is a debt repayment.
If you are repaying a credit card debt, make sure you pay off significantly more than the minimum payment – go for as much as you can afford.
Save instead of borrow
Try a different approach and instead of borrowing money or buying something on hire purchase (HP), work towards a savings goal instead.
If that new flat-screen TV or leather sofa is too good to resist, it’ll be all the more sweet if you’ve spent time saving and buying it outright. This will also allow you to receive interest on savings as well – bonus!