New Year – New Solution
words | Adam Dawson,
Managing Director of Close Finance
Christmas may have left you with a financial hangover that could last long after the headache has gone, but it can be fixed. This is a step-by-step guide to debt, and how to manage it.
Imagine that you had a credit card and decided to only pay off the minimum each month – how long would it take to pay off £1,500?
Three years? Ten years? Twenty? Well, if the interest rate were 20% APR, it would take 39 years and 9 months, and you would pay £4,308 in interest.
It’s staggering isn’t it; you chip away at the total and suddenly realise that those monthly payments are adding up to much more than you actually borrowed.
It’s called the payment trap and it’s very easy to fall into. You might have a couple of credit cards (which originally had 0% APR), a store card (you got a bargain when you signed up), a loan (can’t remember what for), and a little chunk of money leaves your account each month for each one.
The great thing is that, as long as you continue to pay those chunks, nothing will happen. The debts, however, won’t get noticeably smaller and you might worry about just how long it’ll take to pay them off.
There is an alternative: take a proper look at the debt. If you are making repayments to several credit and store cards, and are paying off loans too, then you’ll be paying a variety of different interest rates. One option is to amalgamate them into a consolidation loan. All your cards and loans will be paid off, leaving you with one lower monthly payment. For some people, the difference between paying all those chunks and a consolidation loan can be thousands of pounds.
At Close Finance we give all of our customers a free and confidential borrowing review that help people to manage their debts and monthly budgets, and also see if a consolidation loan is right for them. We believe in responsible lending, are up front about how much it will cost, and give advice on how to manage your money.
And don’t worry, you’re not alone. Our research recently found that almost three quarters of islanders plan to borrow money at some point in the future, so you’re in good company.