Finding ways to reduce debt interest payments will help to clear debt in a fraction of the time. Whilst it is a reality of life that money lenders don't do this for free, there are more effective ways of borrowing money. Taking advantage of new business customer rates, such as 12 month interest free credit and 0% balance transfers credit card deals. Alternatively, secured and unsecured debt consolidation loans can help minimise monthly repayments, reduce living expenses and increase disposable income.
How Much Debt Interest is Paid?
- The cumulative amount of interest paid on UK debt in the last 12 months was £66.2 billion. This means that a median of £2,650 was paid by each household.
- The UK government pays £106 million each day in debt interest payments. This is widely projected to swell to £118 million a day in 2010-2011.
Clear Debt with a 0% Balance Transfer Credit Card
Loyalty doesn't result in the best deals so switch to a 0% balance transfer credit card in order to reduce debt interest payments. Take advantage of 12 month interest-free credit deals offered by credit card companies. These are specifically designed to attract new customers. When was the last time one was offered to a loyal customer? The only catch is that a 3% transfer fee is normally added; this can increase the amount owed in the first few months.
Example: Mr Jenkins has £10,000 of credit card debt at 15% APR. Switching to a 0% balance transfer credit card can reduce debt interest payments by £1,500. The transfer fee is £300. This means that the transfer can be used to reduce Mr Jenkins' card balance from £10,000 to £8,700. A series of transfers will allow someone to clear debt in a fraction of the time.
12 Months Interest-Free Credit
Retailers are offering 12 month interest-free credit on goods and services in order to attract new business. If this option is available and bad credit isn't an issue, why pay for something on a credit card? Avoiding debt interest will mean lower monthly repayments and a shorter borrowing term.
Example: Mrs Stephens has the option of buying a £800 plasma TV set on her credit card at 12% APR or on 12 month interest-free credit. Choosing the latter option saves £96.
Unsecured Debt Consolidation Loan
An unsecured debt consolidation loan can be used to put multiple high APR sources of borrowing under one roof. Whilst an affordable monthly repayment is essential, don't be tempted to increase the term. The longer the term, the more will be paid.
Secured Debt Consolidation Loan
A secured debt consolidation loan works in an identical way to its unsecured equivalent. The main difference is that collateral is provided to the creditor. This means that it is a popular option for those who wish to borrow a larger sum of money or have a bad credit rating. Think carefully before turning unsecured into secured debt.
Deals designed to attract new customers are amongst the most effective ways of reducing debt interest payments. Consider a 12 month interest free credit deal or a 0% balance transfers credit card as these are the cheapest methods of borrowing available.
Sources
Credit Action - July 2009
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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