HOW TO SAVE MONEY: BANKS, CREDIT, PAYING DEBTS
by Amanda Prouten
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YOU ARE VIEWING: Banks, building societies, credit and savings
Yes, this is the boring section - but it's the one that will save you the most money. It's time to steal from the rich - the banks - and give to yourself - we know you're poor...
- One of the best independent websites to compare any bank rates and special deals on all of the above is www.fool.co.uk. Use this for up-to-date info but bear the following golden rules in mind:
- Make sure your bank's not ripping you off. Unless you have a current account with no bank charges, free overdraft up to at least £200, free texts to tell you when you're approaching your last couple of hundred quid of the month, and at least 2% interest on a current account, shop around.
- If your current account bank ever dares to charge you £20 or some ridiculous sum of money for an unauthorised overdraft letter, close your account instantly. You're a customer and you deserve better treatment!
- If you have an overdraft facility, don't go over it! The banks usually charge a fortune for this. If you think you're not going to be able to make ends meet at the end of the month, apply for a low interest loan and save yourself a lot of money in the long run.
- Look at your bank statement every month. Check it. It's surprising the amount of people who find direct debits for items they've send back to the shop, or services cancelled (such as gym memberships) that have been paid out months after they should have. Often it's very difficult to recoup the money once its been paid out. Occasionally, you might find a payment you can't account for. Phone your bank, it could be internet fraud.
- Know your monthly incomings and outgoings. Don't forget once a year payments (eg: home insurance) or quarterly direct debits that can catch you off guard.
- It's great to save a bit of money but don't even think about it if you have huge credit card, store card and loan debts. The average interest you'll get on a savings account is around 5%, and the average interest you'll pay on a credit card is around 15%. It doesn't take a genius to work out that it makes sense to pay all your cards off before contemplating that nest egg.
- Store cards can charge you up to 30% so never, ever dabble with them - they're the work of the devil!
- When you have paid off your debts and are ready to start saving, look for the best deal for your needs - high interest with instant access is best. Look on www.fool.co.uk for guidance and make sure you keep up to date every 4 - 6 months to make sure you're still getting a good deal. If you spot another savings account with better interest, don't be afraid to move your money over.
- If your credit cards are getting out of hand and your debts are spiralling, arrange to pay them all off by getting one cheap rate loan. If you have a mortgage, look into getting a homeowner loan at the same rate as your mortgage (it's probably the cheapest loan rate you'll probably get), but for a much shorter term. Otherwise shop around for a good deal. Then cancel the cards, cut them up and vow not to get any more until you've cleared all your debts.
- If you must use credit cards, use them cleverly. Martin Lewis (author of The Money Diet - highly recommended) explains on his rather brilliant website www.moneysavingexpert.com how to do the 2 (or 3 or 4!) card shuffle to avoid paying any interest, even if you're hideously in debt. Basically, you pay one card off with the other before any interest is accrued and so on. It helps if one of the cards is a new 'interest-free for 6 months' special offer. Having said that, if you're a bit slack about paying on time, forget it - this trick needs real organisation and dedication or you could come really unstuck.
- You can also use credit cards cleverly to avoid paying and interest at all! Get a '0% interest on balance transfers for Xmonths' deal and use the time to get ahead with your saving to pay off your debts. Make sure you pay up or switch the card to another 0% interest card before the interest kicks in.
- As already mentioned, a mortgage interest rate is probably the cheapest interest loan rate you'll ever come across. But mortgage deals and interest rates vary. If you have a mortgage, check how long the term is that you are bound to it (It's usually 4 or 5 years), and shop around for a better, cheaper interest rate as soon as the initial fixed term is over.
- Don't even think about an endowment mortgage as the sum at the end of the term is never guaranteed and you don't pay off any of the capital until then.
- Get a repayment mortgage, and aim to get a better interest deal every few years, when permitted. This should hopefully coincide with your own income going up and more available spare income. Be clever and each time you change your mortgage terms, reduce the length of time of the mortgage, so that you pay it off quicker and pay a lot less interest in the long run. For example a £100,000 mortgage for 25 years will finally cost you £200,000 at 6.5% interest, but if you can reduce the term to 15 years, you'll only have to pay around £157,000. Check out the sums at www.thisismoney.co.uk/tools.
- If you're looking to buy your own home, and can suffer living with your folks or sharing with friends for a while, make sure you're saving a decent size deposit. It'll save you so much interest in the long run.
- Save money by letting a spare room in your flat to claw back some of your mortgage money and share all the bills.
