How to Cut the Cost of Your Debts
When your debts seem to be spiralling out of control, it can be easy to panic and forget that you have options. Here are some strategies to help you cut the cost of your debts and improve your financial situation.
Use your savings to pay off high interest rate debts
If you are sitting on a pile of cash, you should not be afraid to use a portion of it to pay off high interest rate debts. Although it may feel comforting to have some cash in the bank, it is unlikely that these funds are working for you in today's low interest rate environment.
Switch to a cheaper loan
If you do not have savings, you might be able to take out a cheaper loan, which you can then use to pay off your existing loan or credit cards in full. It is important to remember, however, that your repayment term will also be the total cost of your loan, so ensure your new loan has a repayment term that is the same as, or shorter than, that of your existing loan.
Negotiate a lower interest rate with your creditors
If you have maintained a good relationship with your creditors, you may be in a good position to negotiate a lower interest rate. By accepting a lower interest rate, you will be able to save money on your interest payments.
Reject credit card interest rate increases
If you owe money on your credit card and your card company informs you of an interest rate rise, you have a right to contact the company and reject the interest rate increase within 60 days of receiving the interest rate rise notification. Once you have rejected the rise, you will not be able to use your credit card for further spending, but you will be able to repay any money you do owe at the existing interest rate.
Increase your debt repayment percentage
If you only pay the minimum amount each month, you may end up increasing your debts because the interest on your loan will constantly add up. Paying a small amount on top of your minimum payment can help you save a significant amount of money on the interest you pay, helping you to pay off your debts more quickly.
Consider consolidating your debts
If you owe money in multiple places and you are struggling to keep up with all your repayments, merging your debts together into one loan, with one interest rate and repayment schedule, could help you save money and organise your finances. However, your creditors may charge you early exit fees that negate the benefits of your new loan.
Look towards balance transfer credit cards
If you have a good credit rating, it may be possible for you to move your current credit card debts to a credit card offering a 0% deal for a fixed period of time. By transferring to a 0% deal, you will eliminate your credit card interest, helping you save the money you need to reduce your debts. If switching to a 0% deal makes sense, it is vital to make a note of the date on which the deal ends to ensure that you pay off as much of the balance as you can before you start to incur a higher interest rate.
It is easy to feel powerless when you have debts mounting up, but by taking steps to cut the cost of your debts, you can help yourself regain control over your finances.