How to have a happy, debt-free new year
If the post-Christmas bills are piling up, now's the time to get your finances in order.
Saturday 27 December 2008
Christmas is over for another year. The turkey has been eaten, the presents unwrapped and the relatives have packed their bags and returned home. All that's left now is to pick up the tab. The average person will have spent almost £500 on food, drink and presents and now will have to make credit card and loan repayments.
More worrying is the fact that 4.5 million people are still paying off the debts – and subsequent interest charges – racked up last Christmas, points out Sean Gardner, chief executive of website Moneyexpert.com.
So how can you go about getting yourself back into the black? The first step is to get a grip of your finances and work out exactly how much you owe, says Andy Gadd, head of research at Lighthouse Group.
"You need to list all of your debts and expenditure, together with your income," he explains. "If your expenditure is greater than your income, then you need to reduce your outgoings."
The good news is that there are plenty of ways to save money. Here is our guide to cutting your costs and ensuring you're getting the best deals in order to ease the financial pressures in 2009.
Your outgoings can be broken down into essential and non-essential items. The former includes your mortgage, household bills and credit card repayments, while the latter will be anything from Sky TV subscriptions to meals out.
Identify any agreements – such as direct debits paying for magazines – and cancel them, paying attention to terms and conditions, such as notice periods and related penalties.
Relatively few people switch bank accounts – even though it's a fairly painless procedure that can provide benefits such as a £100 incentive for making the move, a 0 per cent overdraft and decent interest payable on balances.
Kevin Mountford, head of savings at Moneysupermarket.com, says it's important regularly to examine what's available.
"You need to understand what you want from your current account," he says, "whether it will be run in credit, and if you want an overdraft."
If you have a packaged account – for which you pay a monthly fee in exchange for a range of supposed benefits – check to see whether you are using them. It may be cheaper to buy just those you need.
Make sure you've got the right card for your needs. If you owe a large amount on which you're paying a hefty rate of interest, then consider switching to a card offering 0 per cent on balance transfers.
However, don't be tempted to use the same card for further transactions unless the rate for those subsequent purchases is 0 per cent, as any payments you make will go towards clearing the cheapest debt first.
Anyone who fixed their mortgage a year ago around the 6 per cent mark will probably be kicking themselves now.
So what should they do? "It's worth looking at what's available but remortgaging can come at a hefty price," warns David Hollingworth, spokesman for broker London & Country, "as there will usually be fees for early repayment."
Therefore, homeowners need to check the terms on their existing mortgage, look at what's available in the market, and weigh up both the fees that will be applicable for early redemption and to take out a new policy.
Anyone whose current agreement is due to expire early in 2009 should get a new mortgage offer as soon as possible.
A major chunk of the average family's income is spent on keeping their homes running, so it's clear that savings can be made in this area, says Simon Lamble, product director at Confused.com.
"It's more important than ever for people to realise that there is a simple way to relieve some of the pressure on their income – by exploring ways of reducing their fixed household expenses."
Energy is one of the priorities. Scott Byrom, utilities manager at Money-supermarket.com, says prices have risen 47 per cent for gas and 28 per cent for electricity over the past year.
"Prices could be slashed by as much as 20 per cent in March," he says. "Savings of up to £325 a year are available for those who haven't swapped suppliers before."
The average household now spends more than £1,000 a year on packages of cover for their homes, vehicles, computers, mobile phones and holidays abroad – but this figure can be reduced without affecting the level of cover provided.
To save money you need to research the market to see what's available, as insurance companies may offer an attractive deal for the first year and then start hiking premiums.
Also, make sure you're not double-insured. Your mobile phone might already be covered on your home contents insurance. You can also save money by agreeing to pay a higher excess in return for a cheaper premium.
You might be able to negotiate discounts on motor insurance if your car is fitted with an immobiliser, is kept in your garage or on the driveway overnight, you have taken an advanced driving course, or you agree to limit your annual mileage.
There are two main insurances covering your home – buildings and contents – and both are essential. The former is a condition on your mortgage. Contents insurance covers everything inside your home. Decide what level of cover suits your needs and check the small print to make sure you know exactly what is covered. Beefing up security can help to lower your premium.
Telephone and internet fees
It is possible to reduce the cost of television, internet and telephone bills by opting for a triple bundle, whereby you pay one company for all three services. Generally, it is cheaper and less hassle. The trick is to decide what you need, scour the market for the best deals and then research the companies involved. Finally, before signing you should check to ensure there are no hidden extras.
There are so many options available in the world of mobile phones that you need a team of assistants just to keep up with the changing tariffs.
Money can be saved by moving to a more suitable tariff when your contract expires. Before talking to a provider, however, you will need a clear idea of how much you use your phone. If it's primarily for emergency use then consider a pay-as-you-go option.
There are a host of other ideas that can help save you money. For example, if you buy the same magazines regularly, then it's worth taking out an annual subscription.
You can also get reductions on regular bills by agreeing to pay by direct debit. Another useful tip is taking advantage of coupons such as two-for-the-price-of-one offers.
It's also worth picking up loyalty cards in favourite stores on which you can earn – and later redeem – points for buying certain products.
However, store cards should be avoided as they often charge a punitive rate of interest. By all means take them out and enjoy the substantial discount usually offered on initial purchases, but then pay off the outstanding debt and cut up the card so you're not tempted to use it again.
You need to establish your investment needs and priorities – regardless of how much debt you may have around your neck, according to Geoff Penrice, a financial adviser at Bates Investment Services.
"We all have immediate demands on our cash, but we do need to consider building up savings and investment for the future," he says. "Individual savings accounts (ISAs) are perfect for the medium term as you can put £3,600 in tax-free cash deposits, and up to £7,200 into an equity ISA."
The past year has been a tumultuous one on global stock markets. Gavin Oldham, chief executive officer of the Share Centre, fears the worst for the coming months. "You need quality stocks in your portfolio whose yields are good and whose dividends won't be cut," he suggests.
The trick is to make sure your money is working hard enough, says Darius McDermott, managing director of Chelsea Financial Services. "You need to make sure you know what investments you've got – and monitor them at least once a year to make sure they're performing," he says. "Check to see whether you're happy with the amount of risk you have in your portfolio."
The next big step
If the ideas here fail to make even a small dent in the size of your debt mountain, then it is probably time to seek professional assistance, suggests the Lighthouse Group's Andy Gadd.
"If you feel that your finances have got out of control, then speak to agencies such as the Citizens Advice Bureau," he says. "Here you can obtain sensible, free counselling on how to move forward."
Financial resolutions: Make a plan for 2009
A survey by Gocompare. com reveals that, of the 43 per cent of people now making New Year resolutions, most have pledged to sort out their finances and pay off their debts.
Nearly half plan to reduce loan and credit-card costs; 42 per cent want to save money on outgoings; 41 per cent intend to invest in the stock market; 15 per cent plan to save more in a deposit account; and 10 per cent to invest in a pension.
Hayley Parson, chief executive of Gocompare. com, isn't surprised that sorting out financial problems is the top priority for many people, given the economic climate, but warns that not everyone will be successful.
"While most people surveyed make resolutions out of habit or tradition, nearly a third hope to change their behaviour," she says. "However, 58 per cent of resolutions falter in less than three months, so people need help to keep on track."
Cash in the attic? Ways to boost your income
So how can you make a bit of extra money? The first task should be clearing out your house to see what you've got buried away in the loft or under the stairs that can be sold for a profit, either on auction sites such as eBay or at a local car-boot sale.
Dan Wilson, author of 'Make Serious Money on eBay UK', says that everything has a value to somebody – particularly unwanted presents that are still in their boxes.
"In these cash-strapped times, well-priced new gifts stand the best chance of getting sold," he says. "DVDs, toys, collectables and clothing always sell well on eBay."
As well as setting up PayPal to accept payments easily, he advises eBayers to despatch items quickly on receipt of payment to secure the best feedback from customers.
"To entice buyers they could also consider combining postage costs with the selling price so it looks like they're offering free P&P," he adds. "Buyers like the certainty of seeing one price with no hidden costs."
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