Order your debts

My advice is straightforward and you will have seen it before, but it is probably one of the easiest ways for individuals and companies to save money.  If you have any debts make sure you know which has the highest rate of interest.  If you are in a position to repay debt, you should pay off your most expensive loans first.  For individuals this is likely to be store cards or credit cards, followed by other unsecured lending to banks in the form of an overdraft.

Even with historically low base rate from the Bank of England, you can pay between 30% and 40% interest a year on store card and credit card purchases.

Maintain minimum payments

For the remainder of your debt, make sure you keep up your minimum payments.  Failure to do this may mean additional charges are added to the debt and may affect your credit score.

Check for forgotten accounts

If you have a balance in your PayPal account or your energy supplier you are lending money free of charge.  You might be relaxed about this, but while you are paying interest on your own debts you are much better getting the balances transferred to your lenders.  Clear out any long term balance from PayPal etc and check your statements from your energy suppliers and any other suppliers to arrange for overpayments to be refunded.

Example

Let’s say you have a balance on your credit card of £200, which you are repaying at £5 a month.  The table below shows the total interest you will pay and the time taken to repay the entire balance.  At an annual interest rate of 32% (2.34% monthly interest) you will pay nearly £395 in interest on your original purchase of £200 and it will take nearly 10 years to pay the whole balance back.  If the annual interest rate rises to 35% you monthly interest would be more than the £5 monthly payment and you would never pay your original £200 off.

So – if you happen to have £200 in your PayPal account that you had forgotten about at the same time as a £200 credit card balance, you could transfer the cash, pay off your credit card balance and save yourself between £70 and £395!

Manage your cashflow

Work out how much cash you actually need for your day-to-day needs.  It is likely that you are receiving little or no interest on cash in the bank.  If you are confident that you have surplus cash, use it to pay down any debts you have – but start with the expensive debt don’t share it out equally between the different debts you have.

For support and advice on restructuring and paying off debt contact Alterledger or visit the website alterledger.com.