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One of the best debt reduction solutions is to give your finances an annual spring clean.
Okay, when the weather gets better and the sun starts to shine you could be forgiven for thinking that you have better things to do with your time, but if you've got financial problems, this is an important step. It's vital to make sure that the money you do have is used as efficiently as possible.
For example, people in the UK alone waste £147 billion a year by persisting with inefficient services and financial products. And the average person could save £2000 a year by taking time to review their borrowings on a regular basis.
Right, let's get started.
MORTGAGES
Make sure you're paying the lowest rate of interest possible. For example, if you mortgage stands at perhaps £150000, cutting the interest rate on your mortgage deal from 5% to 4% will save you £1500 a year in interest payments.
The first option is to approach your lender and see what they can offer. They may have a special offer that they can give you in order to keep your custom.
If they can't match the other deals that are available, consider moving your mortgage to another lender. But before you do, take a look at the extra costs associated with remortgaging. If you have to pay discharge fees, setup fees, legal fees and administration fees on the new mortgage, it might wipe out any potential savings that you make. So pick your deals carefully. New lenders are often willing to waive some of these costs just to attract your business.
CREDIT CARDS AND PERSONAL LOANS
These days, everyone is bombarded with offers of cheap cash and TV is full of adverts for debt consolidation. In certain cases they can help people to reduce their debts, but they can be complex, require large amounts of financial discipline and often have to be secured over your home.
But it's also possible to save money on your loans without resorting to drastic debt reduction solutions such as debt consolidation. There's always a range of lenders prepared to shave their profit margins just to get your business.
For example, if you owe £7000 of personal debt, moving to a new deal thatgets the rate of interest down from 7.9% to 5.2% APR will cost you £100 less every year.
And the deals available with credit cards are just as good. Your current credit card will probably cost you 10-20% APR. But it's possible to achieve a much lower rate of interest.
Debt Reduction Solutions 1: Take advantage of the competition between credit card providers. They all want your business. They're all itching to start charging you interest and late payment penalties, so they're willing to lose money in order to attract you - hence the number of 6 month 0% balance transfer offers that you see advertised.
So here's what to do: Transfer your card debts to a new 6 month 0% deal. Pay off as much as you can during that period and when 6 months have passed, move to another deal. Keep doing that until you have cleared all your credit cards.
If you owe £5000 on your credit cards and currently pay 10% interest, this will save you £500 a year.
However, there aren't as many of these opportunites available now. Many people realised that this method allows them to enjoy the benefits of interest free cash for as long as they can juggle their credit card balances. So the lenders have taken steps to discourage these "card tarts" from denting their profits.
These days, the best deals are often removed if you jump ship from the new lender as soon as the interest free period ends. Okay, you might get a good deal, but would then have to stay with the lender (paying their normal rate) for a certain period after the special rate ends. So in effect, you have to tie yourself to these lenders in order to take advantage of the special offer. And if you do move away early, certain penalty clauses make sure the any benefit you recieved from the special interest rate is wiped out.
Debt Reduction Solutions 2: Use the internet to search for the lowest rate credit card deals on offer. The deals might not be as attractive as 6 months interest free, but due to the amount of competition for your business, you should be able to achieve 2-5% on balance transfers. That will save you a couple of hundred a year and help you to reduce your debts in a shorter space of time.
Once you've got your finances running efficiently take time to review them every 3 months. It might seem a bit of a drag, but ultimately it could make the difference between your financial position getting better and your debts getting worse.
by Stuart Laing
Copyright (c) Get Out Of Debt.
Have you been struggling with debt for as long as you can remember? Are you ready to do something about it? Visit http://www.icanhelpyougetoutofdebt.com for free, impartial information on how to reduce debt. This article may be freely distributed as long as the copyright, author's information and active links are included.
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