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Ten Top Tips for Digging your Way out of Debt

Nobody likes debt and there are very few people who set out to have debt problems that they are unable to deal with.  Unfortunately, the downturn in the UK economy has led to more individuals than ever before falling into a situation where they are unable to meet their payments and clear their debts.  Today we’re going to look at some handy tips designed to help people dig their way out of debt.

  1. If you own money on a credit card and your card company is planning to increase your interest rate, you have 60 days in which to contact the credit company and reject the increase.  Whilst you won’t be able to carry on using the card to spend, you should be able to pay off the debt at your original, lower rate.
  2. Switch of a credit card with a 0% balance transfer if you’re paying interest on a credit card debt – some deals are offering up to 28 months interest free, giving you more than two years to sort out your financial problems.  Average credit card rates have topped more than 18% despite the fact that the Bank of England base rate has been 0.5% since March, 2009.
  3. Avoid payday loans if at all possible – they are costly and take advantage of the continuous payment authority in place to make repeated payment requests in the event that a transaction is not initially verified.  Payday loans should be seen as a last resort.
  4. Pay more than the minimum on your credit card and you may be able to pay off the balance quicker.  This will also have a beneficial effect on your credit score.  Credit reports record whether you make minimum payments or larger amounts and always paying the minimum on existing debts suggests to potential future lenders that you struggle to balance your finances, making it less likely that they will lend to you at a competitive rate, if at all.
  5. Consider consolidating your debts with a personal loan, especially if you owe money on a credit card or overdraft with high interest rates.  Personal loans often charge a lower APR and bring certainty over monthly repayments and the period over which the debt will be paid.
  6. Pay off your debts before embarking on a savings plan.  It’s great to have some savings as a safety net, but using your savings to pay off sums borrowed could save you hundreds of pounds in interest charges.
  7. Get an authorised overdraft or increase your current overdraft if possible.  Going into unauthorised overdraft costs money and can be more expensive than a payday loan.
  8. Improve your credit score as this will be considered if you apply for a loan.  Check your credit report for as little as £2 to find out if there are mistakes on your file, or if you have a poor credit history.
  9. Join a local credit union as their loans are usually cheaper than loans from other providers, especially when it comes to smaller amounts.  They also do not incur set up fees, administration costs or early redemption fees, which can encourage you to pay off the loan quicker.
  10. If you can’t afford repayments on your debts, get some free independent debt advice to plan how you can pay off debts quickly.