Cut debts, change bank, remortgage ... how to get richer in 2003

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The Independent Online

Whether your New Year's resolution is to join the gym or give up smoking, spare a thought for your pocket as well because a few resolutions of the financial kind could repair your wealth while you recover your health.

Whether your New Year's resolution is to join the gym or give up smoking, spare a thought for your pocket as well because a few resolutions of the financial kind could repair your wealth while you recover your health.

Consolidate debts

There is little point saving £50 a month if you have a pile of credit and store card debts, as interest on borrowings is higher than on savings. It is far better to cut debt as much as possible before building up a sum for a rainy day (see below). Consolidation lets you see clearly how much you owe, making it easier to start paying it back. How you consolidate depends on personal preference, as well the size of your debts. You might opt to extend your overdraft, shift everything on to a credit card with a low rate of interest or take out a personal loan (see back page).

Start saving

Everyone should have emergency money to replace the boiler or tide you over should you lose your job. As a rule, three months' salary saved in an instant access account with a good rate of interest should be enough. Don't put too much by as you'll get better returns elsewhere.

Scottish Widows Bank is paying 4.05 per cent gross on balances of £100, but this includes a 0.5 per cent bonus. C&G pays 4 per cent interest on balances of £100, including a 1 per cent bonus for six months. An instant access, mini cash individual savings account is a good altern- ative as interest is tax-free. Kent Reliance pays 4.4 per cent interest, and Safeway 4.5 per cent on balances of £10 or more.

Switch accounts

More than 70 per cent of us still bank with one of the "big four" – Barclays, NatWest, HSBC and Lloyds TSB – even though they pay just 0.1 per cent interest on current account balances and all but HSBC charge extortionate overdraft rates. With internet bank Cahoot paying 3.7 per cent interest on balances and charging 7 per cent on overdrafts, and the Halifax having recently raised its current account rate to 3 per cent, now's the time to switch.

But considering that just one million people changed their accounts last year – between 4 and 5 per cent of the total market – according to the Halifax, most of us don't seem bothered. It is worth it, though; the process should take about five weeks and your new bank will transfer direct debits and standing orders for you.

Use a broker

While insurance can be expensive, you can bring down the cost by shopping around for cover. Researching the market has never been easier, particularly if you have access to the internet. Sites such as www.moneysupermarket.com or www.moneyextra.co.uk are useful in comparing prices for life, motor, home contents, building, travel and pet cover.

If you don't have access to the internet, ring round a few brokers for a quote or call some direct insurers. Remember that the cheapest deal might not offer the most comprehensive cover, so try not to be guided solely by price.

If you are booking a holiday, resist the temptation to buy your insurance from the travel agent: it might seem less hassle but it will cost you more. And an annual policy is likely to be cheaper than paying for several single-trip policies if you go on holiday a couple of times a year.

If you already have cover, there may be penalties for switching to another provider. If so, it is probably worth holding off until the policy is up for renewal.

Remortgage

This is one of the easiest ways to cut costs because with interest rates so low, there are plenty of excellent deals available. As a rule, if you are on your lender's standard variable rate, you can almost certainly save money by switching to a fixed or discounted deal. Contact a mortgage broker to find the most competitive products on the market.

Even if you have to pay a redemption penalty for switching, it might still be worth doing so. Mortgage brokers Charcol and London & Country both have calculators on their websites that enable you to work out whether you will make any savings when remortgaging and paying a penalty (www.charcolonline. co.uk or www.lcplc.co.uk).

Think taxes

Self-assessment forms must be submitted by the end of January, along with any tax you owe for the 2001-02 year. So if you haven't done this yet, you need to act quickly or you could end up paying a £100 fine. More tips for filling in your tax returns will appear in next Sunday's Money section.

If you have already submitted your return and paid any money you owe, you should examine your tax affairs more generally. Married couples should ensure both partners use their personal allowances. And think about capital gains and inheritance tax: a little planning will reduce the chances of a big bill.

Review pension savings

Those who aren't saving towards a personal pension should make this the year they start. The earlier you do so, the better will be your chances of retiring on a decent pension.

Those who still have money invested in Equitable Life should take independent advice on whether to stick with the troubled insurer or pay the penalty and switch to another company.

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