PRICES are soaring, from petrol pumps to supermarket checkouts, but the cost-of-living squeeze is even worse if you are already in debt.
High interest rates mean you risk spending huge sums on repayments without making a dent in the amount you owe.
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Rosie Murray-West reveals the smart switches to clear debts faster and potentially save thousands . . .
LIGHTEN YOUR LOANS
IF you took out a loan a couple of years ago, you might be paying over the odds.
Using a new loan on a lower rate to pay off an old one can sometimes make sense.
M&S Bank is offering loans with APRs below four per cent, compared to an average of 7.4 per cent in June 2020.
That would mean a saving of more than £340 a year on a £10,000 loan.
But you will need to factor in the settlement fee that most lenders charge if you clear your loan early.
It can be up to two months’ interest – which would be £122 in the example above.
Not everyone gets the rates advertised by lenders, as these are reserved for those with good credit ratings.
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Check which loans you’re most likely to get without damaging your score by using an eligibility tool such as the one on moneysavingexpert.com.
EXERCISE EQUITY RELEASE
OLDER home owners who borrowed against the value of their home with an equity release plan can sometimes make massive savings by switching if they took their deal out more than three years ago.
Interest rates on equity release plans have fallen dramatically in recent years.
The average switcher saved around £52,000 last year, according to equity release adviser Age Partnership.
Plans often come with hefty early repayment charges, but switching might still be worth it if the saving is greater.
Always speak to an independent equity release adviser who is registered with the Financial Conduct Authority.
MINIMISE YOUR MORTGAGE RATE
ALLOWING your mortgage to roll on to your lender’s standard variable rate (SVR) at the end of a fixed or tracker deal could cost you thousands each year.
The average SVR, according to Moneyfacts, is now 4.91 per cent, while the average two-year fixed rate is 3.25 per cent and 3.37 per cent on a five-year fix.
For a mortgage of £250,000, you could save £2,760 a year by remortgaging from a typical SVR to an average two-year fix – and some deals available could save you even more.
Your current lender will also offer you new rates when your deal expires, so do check these.
If in doubt, take advice from an independent broker.
BLITZ CREDIT CARD BALANCE
DON’T let credit card debt linger. If you’re just paying the minimum each month, it could take decades to clear.
Only making the average 2.5 per cent minimum monthly payment on a £5,000 balance means it would take you nearly 38 years to pay back and cost nearly £15,000 in total, on a typical interest rate of 22 per cent.
Switch to a balance transfer credit card to get a window of up to 34 months with no interest charged.
Break the total debt down into monthly payments and set up a direct debit to ensure you wipe the balance in that time. If that’s impossible, try to switch again to a new card.
But not everyone can get the top balance transfer deals, as they require an excellent credit score.
Rachel Springall, from comparison website moneyfacts.co.uk, said that even if you can’t clinch a 0 per cent deal you could still save thousands by moving debts on to a low-interest card.
Find out which cards you’re most likely to get with the eligibility check on moneysavingexpert.com.
When you move your debt on to one of these cards you’ll normally pay a one-off fee of two to three per cent of the balance, so £100-£150 if you transfer £5,000.
OBLITERATE OVERDRAFT CHARGES
DIPPING into your overdraft can be one of the priciest ways to borrow, with some banks charging 40 per cent interest – almost double the average credit card rate.
Move to a bank with a free overdraft. Nationwide’s FlexDirect pays you up to £125 to switch and has an interest-free overdraft for the first year. The amount you can borrow depends on your circumstances.
First Direct’s First Account pays switchers £125 and offers a £250 free overdraft. Both providers have eligibility checkers online so you can see if you’re likely to qualify – important if you’re already overdrawn.
To pay off larger overdraft debts, a money transfer credit card could give you an interest-free respite, but beware fees.
‘INTEREST-FREE CREDIT CARDS LET ME BORROW TO GROW MY BUSINESS’
HYPNOTHERAPIST Emma Gosling borrowed £5,000 on a credit card in 2019 to pay for a mentor to help grow her business.
But with an interest rate of 19 per cent, the costs could have spiralled.
The 47-year-old from St Albans, Herts, transferred that debt to two new credit cards, a move that gave her an interest-free period of 27 months.
She has now cleared the debt without paying a penny in interest.
“I’m glad I used the cards,” Emma said.
“I couldn’t afford to pay for the mentoring upfront, so this was a good solution.”
RENTERS’ ENERGY HELP RISK
MORE than half a million renters could miss out on government help with energy bills, Citizens Advice warns.
The charity estimates one in eight tenants of private landlords – roughly 585,000 people – may be affected.
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Renters cannot claim the £150 Warm Home Discount if their landlord manages their bills, and they might also be denied the £400 energy grant from the Government this October.
You can only receive the cash help if you pay your energy supplier directly.
You could try speaking to your landlord or managing agent about the rebate to see if they are willing to pass on some or all of it, but there is no legal requirement for them to do this.
The charity has seen cases where vulnerable renters have been denied the long-running Warm Home Discount.
A man with mental health problems who had less than £10 left on his pre-pay meter couldn’t claim the payment because he wasn’t the named billpayer.
Dame Clare Moriarty, Citizens Advice chief executive, said: “We are worried that many tenants are falling through the cracks, putting them at risk of missing out on money to help with soaring bills.”
Tenants who pay their energy bills directly have the right to choose their supplier and to have a smart meter installed, but should tell their landlord or letting agent.
If your energy bills are included in your rent, this should be stated in your tenancy agreement but there might be a “fair usage” clause limiting how much you can use.
If your landlord pays for your energy and then sells it on to you, they can only charge you for the units of energy you’ve used and your share of the standing charge, plus VAT.
THOUSANDS of women could be missing out on huge sums following more state pension blunders, a former minister has warned.
Sun Money has already called for the Government to speed up efforts to repay an estimated 134,000 retirees, mainly women, who missed out on around £1billion because of previous errors.
The Department for Work and Pensions is trying to identify those who were underpaid and plug gaps, but 40,000 pensioners are thought to have died without getting what they were owed.
The latest mistakes uncovered by ex-pension minister Sir Steve Webb, now a partner at consultancy LCP, affect women on the new state pension who previously paid a reduced rate of National Insurance known as the “married woman’s stamp”.
They are entitled to claim some of their state pension based on their husband’s contributions.
But some have been wrongly told they have no entitlement when they are actually owed more than £4,000 a year.
If you paid the married woman’s stamp you can check your entitlement by calling The Pension Service on 0800 731 0469.
This post first appeared on thesun.co.uk
