We have decided to start a weekly debt reduction blog, many people are very conscious of their funds and concerned over what way to utilise any money they have. So starting from today we will have some simple advice on debt reduction. Much of it is common sense but some will (hopefully!) be new information.
First, and most importantly you need to map out your finances, and that’s not as simple as saying ‘I have a current account, a savings account and a few quid with the Credit Union’, by this I mean really getting into your finances and what you are spending money on, account statements, credit card statements and also some idea of any miscellaneous expenses you might have.
Once that’s done you can sit down with a person who is a professional (this can be your broker or accountant), in some cases even a friend who knows more than you do is better than trying to go it alone if you are not financially literate (about which we’ll get back to later). Then you have to examine your outgoings and savings (if you have any!) and look at the best ways to utilise them. Do you have an ongoing credit card bill and a few quid in a current account? If so then realise that most current accounts pay 1% interest and Credit Cards generally charge about 20% interest, so that is a negative -19% you are making. It would be prudent to pay off that credit card, even (perhaps) at the expense of not having the same amount in your current account. While it is vital to have a nest egg for a rainy day it is also vital to get some sensible harmony in outgoings and in your overall debts.
Then look at the rates you are paying on all of your debts, mortgages first, as they tend to be the most expensive ongoing debt. If you are paying too much then consider a re-mortgage to get a better long term price – in particular people who are on a Variable rate loan as these are amongst the most expensive on the market, many banks are at the 6.5% mark on the variable side at the moment, that makes a huge difference in payments per annam. For instance, the difference of 5.5% versus 6.5% per year in repayments on a €300,000 mortgage over 30 years is a whopping €2,330 or almost €200 per month (if you think in weeks then almost €50 per week). Look at the cost of a move versus the potential savings and if it makes sense then try to move your mortgage.
Consider the rates you get on savings, there are rates out there of over 7% (banks are desperate for deposit money at the moment) and compare this to current accounts (usually less than 1%) if you are missing out then that is 6% you are not realising, if you have €20,000 in your account that is €1,200 you are missing out on! Again, this is the difference of €100 per month and all you have to do to get it is open a simple account!
The last point in this post (I’ll keep the first one short!) is that of financial literacy, people who are well read tend to do well in English exams, people who are financially literate tend to do better with money, and not because they earn more but simply because they know more and on that point you need to come to terms (if you have not already) with some of the areas surrounding finance, for that reason we will aim to include a simple formula each week covering some aspect of finance. You can also do a night course, or e-learning course on money, there is a night course coming up soon in Marino Tech (Dublin 3) about money, and of course there are hundreds of websites that have lots of ideas on them too.
In the mean time we hope you learned something from the first debt reduction blog and hope to have many other ideas coming soon, if you have any areas you are particularly interested in then please leave a comment with a suggestion.