Just as many people over-indulge food and drink over the festive season and then make it their resolution to make healthier choices in the New Year, you can carry out the equivalent of a detox on your finances. That way your money will be in better shape to deal with those unexpected emergencies and all those opportunities that may come your way.
We take a look at how you can flush out the things that are weighing your money down so that your finances are fully fit for the future
Step 1: Switch to a better bank for you and your needs
In the UK it is a bit of a cliché, but it is said that you are more likely to get divorced than get a new bank account. Although hating banks is almost a national pastime here, inertia seems to prevent people from leaving their current bank. The government even forced the banks to make it simple to move to another account, but it seems many people are just scared of change or just do not want the hassle.
In fact, many banks actually provide a switching service that makes changing accounts go as smoothly as possible. From letting everyone that pays you money to alerting those that you pay know that your account details have changed. For your peace of mind, if there are any errors made within 13 months that cost you money as a result of the switch, the bank providing the service will reimburse you.
It can be worthwhile moving to a new bank account because often the best deals are reserved for new customers. Although you would think that you would be rewarded for your loyalty, sadly, this is not always the case.
Look for a bank account that offers just the features that you need. For example, if you often end up dipping into an overdraft facility, search for the account that offers the most competitively priced service for the way that you are likely to use it.
You may even find an account out there that provides all the services that you require plus offers you a cash bonus just for moving over to it.
On the other hand, if your bank regularly penalises you because Direct Debits bounce, search for a free basic account with no such fines in place. Having said that, try in future to avoid having any Direct Debits being rejected as this is terrible for your credit history and credit score.
Step 2: Review all your Direct Debits and Standing Orders
Paying your regular bills via Direct Debit or Standing Order can help you to avoid paying late and then getting fined or putting a blot on your credit history. In fact, they are such a reliable way to automatically get things paid, you can easily set them up and literally forget about them.
This is great for the bills for essential services, but what about those payments that automatically go out for things that you no longer use, from a long forgotten gym membership to an online film subscription that you no longer actually use? Are there any free trial periods that signed-up for but forgot to cancel so they are now eating into your money?
Carefully go through your regular payments and evaluate whether you really should be spending your hard-earned money on them, then cancel any that you can live without. Be sure to alert both your bank and the company concerned that you wish to cancel.
Step 3: Make a budget
Review how much money is coming into your household (your income). Include your spouse’s or partner’s details if you live with them and include all money earned and any benefits or pension that you receive. Then look at what is going out (your outgoings).
You will probably find it useful to go through your bank statements to get the exact figures of the expenditure that goes through your account. But do not forget about those expenses that you regularly pay using cash, or by using a card. Search online for a free budget planning tool, then enter your financial information into it.
Examine that list of expenditure carefully and consider if anything on it could be cut out, or could be paid less for. Going through this exercise will quickly highlight how much (or how little) money is left over each month once everything has been paid.
Step 4: If possible, build a savings buffer
Once you have made a budget, if there is a healthy amount left over once your essential expenditure has been accounted for, could some of it go into boosting your pension pot for the future?
Or could you put a set amount of it aside into a savings account for a rainy day or a special occasion, a holiday fund or a newer, more reliable vehicle?
With savings in place, you will feel a lot less stressed if you are suddenly faced with unexpected bills or expenses. Plus, you are less likely to need to use expensive forms of debt, such as credit cards.
Step 5: Look for more competitive deals
Go through your regular bills and then visit comparison sites to see if you could be paying less than you are at the moment. The chances are that you could save money on everything from your utility bills (gas and electric) to your mobile phone package. See when your various insurances are up for renewal and make notes on your calendar to shop around for better quotes.
Step 6: Consider a debt consolidation loan
If you have credit card balances that are just not going down, consider taking out a debt consolidation loan. This means paying all your existing credit cards off with one large loan.
The benefit of doing this is that it will probably cost you less each month to make the one single repayment on the consolidation loan than making repayments for all your cards. You should then have more left money left over each month.
It will also mean that you will finally start to actually pay the debt off, as by just making the minimum repayment on your cards it would have taken an age to make an impact on what you owed.
Step 7: See if you can save on your mortgage
Check the interest rate on your mortgage to see if it is still competitive. If you have been with the same mortgage lender for a while, or the lender’s offer rate has ended so you are now on a variable rate, it could be well worth considering remortgaging to take advantage of a better deal.
Our expert mortgage brokers at Loan.co.uk will be able to take you through the best options for you and your circumstances.
Step 8: Check your credit score and credit history
Sign up for access to a free credit score site. You will usually gain insights as to how you could improve your rating and improve your credit history, just by making a few simple changes to how you handle your finances.
With a better credit score you may become eligible for loans at better rates in the future. You may even spot errors in your credit history that have been having a negative impact on your ability to find a loan at a competitive rate.
When is the best time to take action and sort out your debts?
The best time is right now. The longer you leave it to tackle debts, the harder it becomes. Hopefully, the financial detox ideas above will have identified plenty of areas where you can reduce your outgoings and will have highlighted where you could be at least a little thriftier. If so, use the savings you make to at least chip away at your debts, preferably choosing those with the highest interest rates first.
Obviously, taking all eight financial detox steps will not be a quick process, but if you work your way through them your finances will end up in great shape for the future and whatever it brings.
If you want to see how much you could save on your mortgage or if you are looking for a debt consolidation loan to decrease your monthly outgoings, call us on 0820 131 0080 or complete an online application here.