How to clear all your debts in 2018


Millions of Brits overspend at Christmas, leaving them in financial difficulty come the New Year.

In fact, a whopping 7.9 million people in the UK will struggle to pay their bills this month after an excessive festive period, according to the debt charity Money Advice Trust (MAT).

Severe debt isn’t just a financial problem either. The stress of owing money can lead to mental health issues and relationship breakdowns, according to charity Mind.

If your new year’s resolution is to be better with money in 2018, Money Saving Expert Martin Lewis can help you alleviate your debt.

The 45-year-old has already revealed the best bank accounts for interest rates on savings, but in his most recent Money Tips newsletter he revealed some key tips for cutting the cost of debt this year.

Here are five simple steps to help you pay off your debt quicker:

1. Stop borrowing money

It can be easy to get into a downward spiral with debt, but you need to stop borrowing money.

Only pay back what you can afford each month or you’ll make the situation worse in the long-run.

 2. Identify which debts need paying off first

Start paying off the debts with the highest interest rates first.

"Use all spare cash to clear it and just pay the minimum on everything else. Once it's clear, focus on the next costliest,” said Martin.

3. Cut credit card costs

If you’re currently paying interest on your credit card look for a better option. You will have to pay a fee to transfer the debt, but it will be cheaper than paying the interest in the long-run.

Martin recommends swapping to either a Barclaycard or MBNA card to get the longest 0% interest period.

Barclaycard

Offers 38 months with 0% interest and they offer a low fee to shift your debt.

 MBNA

They also offer a 38-month 0% periods, but a slightly higher fee to transfer your debt.

Cut overdraft costs to 0% (and make some extra cash doing it)

Martin reveals two key options when it comes to cutting your overdraft payments:

· Switch to a 0% overdraft

First Direct offer a 0% overdraft of up to £250 and they also give you £125 to switch to the account.

Nationwide Flexdirect 0% overdraft is much bigger, but depends on your credit score. It only lasts a year, so you’d need to have it payed off by then or consider swapping again.

If you've a friend who already has a nationwide account, you both get £100 if you switch, via their recommend a friend scheme.

 · Use a 0% money transfer card

A few specialist cards also allow money transfers.

“This is where the card pays cash directly into your bank account, thus clearing your overdraft, so you owe it instead, at up to 37 months 0% - very useful for larger overdrafts,” Martin explains.

4. Cut big personal loans to 2.9%

If you’re clever about it, you can get a new cheaper loan to pay your old, more expensive one off.

On his website, Martin offers up this useful four-step process to find out if you could save money on your existing loan:

STEP 1: Ask your current lender for a settlement figure. This is how much it'll cost to repay your loan in full now including early repayment costs (i.e., the amount you'd need a new loan for to pay off your old one).

STEP 2: Work out how much it'll cost you to stay where you are. Check what your monthly repayments are and how many you have left (ask the lender if you don't know). Then multiply the two to see how much it'll cost you if you stick.

STEP 3: Find the cheapest new loan for the settlement figure. For borrowing under £3,000, the cheapest route is likely to be doing a money transfer (see above). Above that, a cheap loan wins. Use our free Loans Eligibility Calc to see your likely cheapest deal. Yet remember; with loans, only 51% of accepted customers need get the advertised rate.

STEP 4: Find out which is cheaper. Use the MSE Loan Switching Calculator to see whether you should stick or not.

Cut store card costs

Store cards are basically just credit cards, but a lot of them have much higher interest rates.

For example New Look's is 28.9% APR and Argos’ is 29.9%. You can transfer the balance on these to a better credit card too.

5. What about student loan?

Martin suggests leaving your student loan while you get your other finances sorted. He said: “While it's counter-intuitive, you're actually better off just to leave it.”

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