8 Financial Detox Steps

Detox your finances with these simple steps

Fast quote and free advice.

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 financial detox. 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

As part of your financial detox, 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?

Over a lifetime, the average person in Britain will waste £30,000 on Direct Debits they no longer use1. That’s a staggering amount! That’s why it can be worth double checking your bank statements to see if there any Direct Debits going out that you could 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. A financial detox will likely show you that you could save money on everything from your utility bills (gas and electricity) 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

Did you know that the average household owes £15,385 to credit card companies, banks and other lenders?2.

Credit cards, small loans and an overdraft can quickly eat into your monthly income. If you only make the minimum payment on those credit cards, the debt will linger longer than you ever imagined.

At the same time, perhaps you’re concerned that the low interest rates we’re currently seeing might eventually come to an end?

Well, if you’re not in the middle of enjoying special ‘promotional’ credit card rates, it may be worth considering paying off those balances now with a homeowner loan. This secured loan uses your home as collateral, so depending on your circumstances the interest rates can be very competitive.

Why not gather together your credit card statements and take a look at the various APRs (Annual Percentage Rate – the interest rate you’re being charged)?

Our expert brokers at Loan.co.uk are able to run a ‘soft credit search’ and advise you on what you may be eligible to borrow.

They may even be able to work out for you how much money you could save. A good broker will take your circumstances into account and the loan you are likely to be approved for.

By consolidating your existing debts into one, larger, consolidated loan you may be able to cut the amount that goes out of your current account each month. That might leave you with a lot more money left over each month. Why not see if we can help you? Just resist the temptation to use those cards and that overdraft again.

Of course, as a homeowner loan uses your home as collateral, please note that your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Step 7: Happy with your home, but not your mortgage?

Almost 47,000 homeowners decided it was well worth moving their mortgage to another lender in July 2018 alone. Their remortgaging transactions added up to a jaw-dropping total of £8.7bn3.

You too could look into seeing if you could secure a new mortgage with an even more competitive rate than your existing one. A remortgage works by simply replacing your existing mortgage with one with a lower rate.

The longer you have been with the same lender, the more likely we are to be able to find you a better deal. After all, any special discounted rate period you may have enjoyed could be over.

A remortgage could save you money if you find a deal that has a competitive (and lower) interest rate.

That could free-up more cash for the things you need and help you experience more of the things you enjoy. Just please be aware that if your mortgage comes with an early repayment penalty, it may not be worth moving your mortgage. Ask an expert at Loan.co.uk for help – and see how much you could save.

Step 8: Ensure that your credit score is in good shape

You could check your credit score via a free online site to make sure it’s in decent shape. ClearScore, a credit ratings company, stated that in 2018 the average credit score was 380 in the UK4, which only just counts as ‘fair’. You’d be surprised to see what can impact your score.

To give yourself the best chance of being accepted for a loan in the future, check out our hints and tips on improving your credit score and building a positive credit history.

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.

 

 

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