Have you made some New Year Resolutions for 2020 – or even for the new decade?
Millions of people in Britain want to improve their finances – start saving, clear debts, pay less interest, get a better credit rating etc.
I think it’s a good idea to ask yourself what you would like to change in 2020. If you carry on doing the same, then you probably aren’t going to succeed with those hopes.
So here are some of the common resolutions I hear, with some practical tips to translate wishes into action this year.
Tackle a specific debt
“I want to pay off my largest credit card”
Tip 1 – Decide which card to target first and go for it! Don’t just try to get them all down a bit, that’s too depressing. If you target the one with the highest APR that reduces the interest you pay. Or go for the smallest one and get a quicker win, then aim for the next one.
Tip 2 – get a 0% balance transfer if you can, but you will need a good credit record.
Tip 3 – make sure your other debts (cards? overdrafts? bills?) aren’t going up because you are overpaying that target credit card. That isn’t clearing debt, it’s just shuffling it around.
“Clear my catalogue balances, but it’s hard to pay more than the minimums”
These are probably at really high rates of interest. One reader said “My balance is £983, the monthly interest is £35.64 and my monthly payment is £39.33” so she is paying off less than £4 a month. But what can you do if you have little spare cash?
Tip 4 – set up a standing order for just a bit more than the current minimum. For that reader it could be £40, or stretch a bit to £45. It isn’t much more, but by paying the same every month you avoid the minimum payment trap and pay it faster. A lot faster. Years faster!
Tip 5 – avoid Buy Now Pay Later temptations. If you can’t pay more than the minimums, you probably can’t repay it in time and then they load on all that back interest. This isn’t the sensible way to buy things, too often it’s a disaster.
“Get rid of my overdraft”
Many people find overdrafts the hardest debt to clear.
Tip 6 – the simplest approach is often to get a new bank account without an overdraft and then just pay a set amount off the old overdraft each month, like repaying a loan. Sounds like overkill? Well see how you get on with clearing it… if you haven’t made any progress by April, it’s time to switch.
Tip 7 – if you are switching banks to one that has lower overdraft fees, check if they have recently changed their charges. Because if not, that bank may be about to put them up! Read Are your overdraft fees going up? New “simpler” charges may not be cheaper!
Face up to a big debt problem
If you don’t have enough money to make all the minimum payments to your debts each month, and your aim is just to survive, not pay them off, the best thing you can do is take debt advice.
Tip 8 – the sooner you do this, the more options you have, but it’s never too late! See good places for debt advice for where to go. The debt advisers listed there are practical and non-judgemental. Taking the first step may feel scary, but you will feel a lot better when you have done it.
Tip 9 – never consolidate debt unless it’s at a really low-interest rate – and never get a secured loan without taking debt advice first. If you have bad credit, consolidation at a high-interest rate will leave you in a worse position in 6 months or a year.
“Track what I spend – it just seems to vanish!”
The more you know about where your money is going, the easier it is to decide what you want to change.
Tip 10 – a notebook or a spreadsheet will work fine but you have to enter everything you spend… so look at Apps that help you budget to see if one can do most of that work for you.
“Don’t buy more stuff I don’t need”
Tip 11 – think about your weak spots and how to tackle them:
- for food shopping, make a meal list and a shopping list from it once a week. Switch to online shopping if you get easily distracted.
- how about “no new clothes for adults for 6 months” as an ambition?
- print out Martin Lewis’s Money Mantras card and slip it into your wallet.
- if you tend to browse online while watching TV, look at these 5 ideas to spend less online.
“Improve my credit score and recover from poor decisions when I was younger”
Unless there is an error on your credit records (default date too late? or a debt you don’t recognise?) the key to improving your credit score is usually just plodding on, making more than the minimum payments to your cards, reducing the amount you owe and getting out of your overdraft.
Find out what the real problems are on your credit record by checking your reports with all three credit reference agencies as they may all have different data. Debts that have defaulted and CCJs will drop off after 6 years so work out when your credit record will start to improve a lot even if you do nothing.
Tip 12 – don’t miss a payment by accident. Set up direct debits so if you have the flu or are extra busy at work, all the bills get paid. If you switch mobile network, don’t cancel the DD until you are sure you have had the final bill. Do the same if you move house – getting a default for a water or electricity bill will mess up your credit record for another 6 years.
“Get an emergency fund”
Great ambition, especially if you have problem debt. Without a small emergency fund, life is just one damn thing after another. But finding the money can be very hard.
“Save up for Christmas this year”
Don’t sign up with Park! Savings clubs are not regulated, your money is not protected and there is no compensation form the FSCS if they go bust. Farepak went under in 2006 and 150,000 customers had Christmas ruined. The law has not been changed since Farepak, the fancy words on Park’s website do not add up to proper protection for your money. At the end of 2018, the government started a consultation on what could be changed, it doesn’t seem to have got anywhere.
Tip 14 – Some credit unions have specific Xmas savings schemes. There your savings are protected, like they are in a bank or building society.
“Pay 5k off my mortgage in 2020” or “Save house deposit by 2022“
These are big targets. Work out how much you need to save each month to get there. If that sounds impossible, then don’t give up, aim for half that instead.
Tip 15 – if you wait until the end of the month, you will have to be super-disciplined to have so much money left. Instead set up an extra standing order for that to go out the day you get paid.
Tip 16 – if your pay varies a lot, decide on a “minimum” level to overpay through a standing order and every month pay over any extra you earn – after tax of course.