High Interest Debt (Credit Cards / Payday Loans)

So hopefully you’ve got your SSBS filled out and you have come to the conclusion that something has to be done to increase the amount of cash left over each month. You may be unsure on where to start cutting back in order to achieve this.

If you have outstanding credit card / payday loan debt and only pay off the minimum each month. This is where you start. Simple.

Credit card and payday loan debt is one of the most expensive ways to loan money. Interest rates can go into the 1000s of percent. The quicker you pay this debt off the less interest you will pay on the outstanding amount, which means more cash in your pocket in the long run. Even if you can’t clear the balance this month or next. Throw whatever you can at it in order to clear it as soon as possible. Don’t be tempted to take out another loan to pay off a different loan. Keep things simple and just reduce the debt to 0 as soon as possible.

Here’s a quick example. The loan below is on offer from a well known payday loan company and it’s offering to take nearly double the amount of money off you, than you actually want.

For a loan of £600, over a 6 month repayment period. It will cost you a total of £1138.29. The total you are paying back is nearly double what was borrowed in the first place.

The ideal approach to this is, you use the SSBS to budget and save for that £600 purchase. The bonus being you then go on to keep the other £600 that nearly ended up in someone else’s pocket.

Credit cards can be just as bad although interest rates are usually lower. My advice is simple. Clear this debt as soon as possible. However, if you happen experience some kind of strange satisfaction from using credit cards, then make sure the balance is paid off in full each month.

A positive note on credit cards. Credit cards can be handy and do come with an advantage which I’m sure many people do not know about. It’s know as the ‘Consumer Credit Act’ and it basically means that the credit card company it just as responsible for the quality of items or services purchased than the seller. So credit cards can be useful when making expensive purchases and want an extra level of protection, as you can put in a claim to the credit card company and seller if something was not up to standard. If the credit card company agrees with you and pays out, then they will go on to recoup their costs from the seller.

A further in depth look at this can be found on the Which website Section 75 of the Consumer Credit Act

Great! So you’ve now got a live and kicking SSBS, the credit card / payday loan debt is being wiped out as we speak, so what now? Saving. There is always room for more saving.

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