Get a cheaper credit card
Despite fees, there are still competitive 12-month interest free balance transfer deals arounsd that are preferable to paying the lender's standard card rate. Visit our best buy table to find the latest deals.
For those that don't want the hassle of switching, a life of balance card could be the answer. These cards charge interest on balances transferred from day one, but typically at a much lower rate than card purchases and usually at a better rate of interest than the customer could secure by using a personal loan.
The latest offers can be found here
Switch loans and mortgages
Your mortgage is probably your biggest expense and if you are paying the lender's standard variable rate then you are throwing money away. Best buy fixed rates currently start from 4.50%, while variable deals start from 4.85% - well below the average SVR of 6.5%. For example, someone with a £100,000 repayment mortgage could save £450 a year by switching their mortgage to Nationwide's 4.59% two-year fixed.
The same applies with personal loans. New rules mean it is easier to switch personal loans and competition in the market is rife. Take a look at our loans service to find the best rate.
Switch utility suppliers
You can save hundreds of pounds a year by moving your gas, electricity, home phone, mobile and internet provider. The process to switch these services should be simple and competition in the sectors means that there are good deals to be found. Visit This is Money's bills section to see how much you could save by switching suppliers.
Cut up store cards
Quite simply, these cards rely on consumer apathy and ignorance and should be binned immediately. They typically entice customers with the offer of a 10% discount on goods, but this is easily clawed back by the excessive interest charged, usually around 30%.
Don't borrow more to pay off debts
Although it is advisable to switch credit cards and loans to find cheaper deals, borrowing more money to pay off debts could only lead to more trouble.
Contact the right people
Daytime TV is full of adverts from debt management companies telling you that they can help transform your debt into manageable chunks. What they don't tell you about is the high level of fees and interest they charge for the privilege.
Reputable organisations, such as PayPlan or the Citizens Advice Bureau, or a debt charity such as National Debtline will not only help you for free, but can also help reduce your level of debt. They negotiate with lenders on your behalf to work out a manageable budget based on how much you can realistically afford to repay. Many lenders are open to negotiation as they would prefer to get some of the money they are owed back than for the debtor to declare themselves bankrupt and lose the lot.
IVAs and bankruptcy
An IVA is a legal contract between an individual and their creditors to repay the debts. Although IVAs don't cover mortgages (apart from arrears), your house cannot be repossessed while you are on an IVA. These are suitable only for people who are employed full-time and can be used if you owe more than £10,000 to three or more creditors.
Three quarters of your creditors have to agree to the IVA, which typically repays 35p to 40p in the pound off your unsecured debts while the interest is frozen. Secured debts, such as a mortgage, have to be repaid in full.
In more serious cases bankruptcy is the only option. It costs just £450 to declare yourself bankrupt, which includes the bankruptcy order and court fees. A trustee, usually an accountant, is put in charge of your estate. Anything you own, including anything you inherit, plus a proportion of your income will be taken and passed on to creditors. However, bankruptcy should be regarded as a last resort. By declaring bankruptcy you lose control over the majority of your assets and also limit any future access to the credit market.
Be disciplined
Devise a realistic budget and stick to it. Work out your weekly spending habits and cut out anything that is an unnecessary. If you do switch cards, don't start spending on the old one, cut up expensive store cards and constantly keep an eye on good deals in the market where you can save money.
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