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Your Money > Budgeting Articles > My Top Three...
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By Laura Starkey
This article was first sent to Fools as part of our 'Summer Lolly' email campaign. The sun might be shining and the sky might be blue - but if there's one thing that'll put a dampener on your summer holiday, it's worrying about how you've financed it. After all, if your debts are snowballing out of control, you'll be a lot more anxious about the state of your finances than the weather forecast. So, to put the sunshine back into your summer, here are my three top tips for taking control of your cash... Three Is A Magic Number 1. Review Your Situation It's easy to lose track of credit cards, store cards and loans. If you have debts, exactly how much do you owe, and where? Look at the details of your debts, including the rates of interest charged, how much you need to pay off each month and how this fits in with the rest of your spending. Use the Fool's famous Statement Of Affairs Calculator to calculate exactly how much you have going in and out every month. This might seem like a scary prospect, but it's less stressful to know the facts than to guess at how bad things might be. 2. Create A Summer Spending Plan Hopefully, you already have some kind of budget in place. If not, it's a good idea to make one, with the key objective to spend less per month than you earn. Don't forget that, during the summer, you may need to factor in spending on specific things such as holidays, day trips and entertaining youngsters. Budgeting for these things is empowering -- and will help prevent costs from spiralling out of control. 3. Slash The Cost Of Your Debts If, like most people, you owe money on credit cards, you could currently be paying around 16% for the privilege -- a far from competitive rate! So, now it's time to act positively and slash the cost of your debts. There are three simple ways to achieve this. Go For A 0% Credit Card In my opinion, a 0% balance transfer credit card is the best way to demolish your debts, because you do not pay any interest on the debt you transfer to the card. That means every pound of your monthly payments will go towards paying off your debt, allowing you to get rid of it off quicker and potentially saving you hundreds of pounds in interest payments. Armed with a card like one of the three below, you'll be in a great position to beat down your debts.
It's worth remembering that, nowadays, most credit cards (like the ones above) charge customers a fee: typically 3% of the amount you are transferring. So don't forget to factor in how much this will cost you. Also, if you know your debt won't be paid off within the interest-free period, make a note in your diary to apply for a new 0% card a few weeks before your current deal runs out. This way, you can shift your balance again. Whatever you do, don't be tempted to use a 0% balance transfer card to make new purchases, or you will suffer from negative payment hierarchy. Finally, it's important to note that -- thanks to the credit crunch -- 0% balance transfer cards are not as easy to obtain as they once were. If you have a less than perfect credit history, you may want to consider another option... Get A Life-Of-Balance Transfer Card As my Foolish colleague, Serena Cowdy, recently reported, lifetime balance transfer cards are a great way to beat the credit crunch because they allow you to pay a low, fixed rate of interest forever. This is in contrast to a 0% balance transfer card which typically reverts to an interest rate of around 16% after a year or so. Anyone who's worried they won't be accepted for a 0% balance transfer card, or doesn't want the hassle of constantly shifting balances around, should consider applying for a card like the Barclaycard Platinum Long Term BT card. It comes with a very reasonable balance transfer rate of 6.5%, fixed for the life of the debt. That's around 8-9% lower than the typical rates most cards charge. And, unlike most 0% cards, there's no fee for transferring your balance. Pay Everything Off With A Loan This is a good option for those who feel they'd rather consolidate their debts into a single personal loan, and pay off the debt steadily over a set period of time. It could also appeal to anyone who might find taking out a new credit card too tempting! But while paying off credit card debt with a personal loan can be cheaper over the long-term, it's also less flexible -- and potentially more expensive -- than using balance transfer deals, especially because the most competitively-priced loans are usually only available to those with clean credit histories. Also, a final word of warning: once you've transferred balances or paid off your debts with a loan, cancel your old credit cards and avoid using your new ones! Never let reorganising existing debts entice you into borrowing more, or your efforts could end up wasted. Clearer Skies Are Ahead! Hopefully, if you deal with your debts in one of the ways above, you should be able to approach summer with your cash-flow under control. Even if you're still working to pay off debts, there's a lot to be said for the stress-reducing effect of knowing you're doing so as cheaply and efficiently as possible. There might still be the odd rain-cloud in the sky this summer - let's face it, this is Britain... But at least, if you take control now, you won't spend the season drowning in debt. Why not compare credit cards and personal loans at The Motley Fool? Useful links:
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