Five financial bad habits to ditch today
1. Stop credit card debt spiralling out of control
Credit cards can be a useful tool, if you use them in the right way - to make a one-off expensive purchase or transfer existing debt onto a 0% balance transfer card, for example. But it's too easy to rely on cards for everyday spending.
So try and pay off your balance each month, and if this isn't possible, look for a 0% balance transfer card and aim to pay off the total amount during that period. Avoid making only minimum repayments: it will take you a lot longer to pay off the debt, plus the total amount you repay will be greater.
2. Don't neglect your savings
If you're lucky enough to never stray into the red on your bank balance, make the most of this by moving your money into a savings account or Nisa.
Current account interest rates are minimal but shop around: for example, you could earn 3.3% on your cash if it's tied up for five years in a fixed-rate bond with Agri Bank. Moving money out of your current account also means you'll be less tempted to spend it.
3. Curb your overdraft use
It's easy to factor in overdrafts as part of your monthly income, and they're a useful resource. But it's dangerous to max them out every month.
If you're consistently borrowing from your overdraft, look for an account with low or no overdraft fees. Alternatively, take a closer look at your finances and draw up a budget.
4. Stop relying on plastic
We're an increasingly cashless society: credit cards are just so convenient. But it can be hard to keep track of your spending; you can pay by card without fully taking in the cost. If you withdraw a set amount to spend, prices will seem a lot more real.
5. Beat your apathy
It's tempting to stay with the same providers year after year but doing so could cost you.
Remember, loyalty doesn't pay and regular switching of current accounts, for example, could save you hundreds.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.