UK Debt Buster Guide Step Two : Reduce Borrowing Cost

Here's UK Debt Buster's second step to bust our debt quickly. It's about reducing borrowing cost.

You want to pay as little interest as possible on any outstanding debts, so pay off the most expensive debt first. It is best if this can be done from savings or your salary. If this is not possible you may want to look at taking out cheaper credit, for example a low-cost personal loan or a zero per cent credit card, to pay-off more expensive debt. Savvy consumers will shop around to ensure they are getting the best deal on loans, credit cards and overdrafts.

However, moving debt around comes with a several health warnings. If you are repaying an expensive loan, ensure there are no early redemption penalties. Remember taking loans over longer periods may reduce monthly repayments, but it will increase the total amount of interest you pay. Short term gain can spell long term pain.

It goes without saying that if you are taking out a loan to repay a credit card or store card debt, then always, always, always cut up the offending piece of plastic. If you don’t, the temptation will be to start spending on it again, and before you know will be juggling your new loan repayments with an ever-growing monthly credit card bill.

Similarly tread carefully with low-cost or zero per cent credit cards. By all means use cheap balance transfer rates on offer to pay off existing debt, but on no account go on a shopping spree with your new card, however attractive the interest rate. Before you know it the “introductory” period will be over, interest rates will have soared skyward and your debts will be larger than ever.

If you are the kind of person that can’t walk by a shop window without feeling an itch to get your wallet out , then don’t apply for new credit cards, cheap loans or extended overdrafts – however cheap the rates on offer. Rather than “shuffle” debt around, concentrate instead on making repayments on existing debts and cutting spending.

Source