Get in Financial Shape this New Year
Many of us start the New Year determined to make our way through a list of brand new resolutions. As the weeks go on however, our determination can begin to fade. Gym memberships go unused and spending on the credit card begins anew as the cold, dark weather gets in the way of our best intentions.
This year, why not set yourself one specific goal which is very achievable. It’s simple, make this the year that you get in financial shape.
Our top tips should get you started in the right direction.
Get to grips with credit card interest. With 1.7 million personal credit cards in Ireland, they are clearly a very popular way to fund everything from big spending occasions to a coffee on the way to work. While they are flexible and convenient, an issue of concern is that credit cards seem to have become a device which many are using to carry debt over from one period to the next. This may be because there is a lack of understanding on how credit card interest really works. There is almost €1.7 billion owed on credit cards in Ireland of which around €1.1 billion (or 70%) is in outstanding balances. This year, ensure that you are well-informed about the terms and conditions of your credit card, and that your spending habits are not resulting in unnecessary debt.
Clear your credit card balance – not just the minimum repayment. Many credit card users can see the minimum repayment at the end of the month as the target to meet - and not a ‘minimum’. There can be a belief that by making the minimum repayment there won’t be any interest charged. Many may not realise that by failing to clear the outstanding balance, interest is chargeable from the date of purchase until the date it has fully been cleared/paid for. Make this the year that you budget to clear your balance at the end of each month – and not just the minimum payment.
Track income and expenditure and set a household budget. Let’s face it, there’s nothing exciting about a planning a budget. But equally, there’s nothing too great about coming to the end of the month wondering if you’ll have enough money to cover those direct debits. Start the New Year fresh by setting yourself a budget for the 12 months ahead. Begin by taking note of your income and all money coming in, and when you receive it. Next make a note of all money going out, and when it’s owed/typically spent. Be realistic here and don’t underestimate your spending. If you are planning on a holiday, car purchase etc. in the year ahead, factor this in also. Generally it’s best to work to a monthly budget, and then work in any loan repayments for that holiday, car purchase etc. into the month. Once you have this plan together you can make decisions on whether you need to change or improve your spending habits, and if you will need to borrow in the year ahead.
Talk to your local credit union about a debt consolidation loan. If you feel overwhelmed by debt as the year ahead faces you, talk to your local, friendly credit union about a debt consolidation loan. The aim of this loan is to help credit union members refinance high interest debts – and combine all of their debt into a single, straightforward payment at a fair and reasonable rate. A restructured payment like this can ease the pressure - and make it easier to really get on top of your debt. There are no hidden charges or transaction fees and repayments can be tailored to suit individual circumstances. You can find contact details for your local credit union here.
Avoid moneylenders and payday loan companies. The decision to turn to a moneylender/payday loan company can potentially prove to be very financially harmful. People can quickly become trapped in a cycle where they need to borrow again just to meet loan repayments. Moneylenders and payday loan companies can legally charge interest rates in the triple digits. Monthly repayments may seem reasonable enough if taken on their own, but when you consider how much you will have paid back to the moneylender/payday loan company over the full term of the loan, you will quickly realise how you are placing yourself under an unnecessary debt burden. Avoid at all costs.
Buying a new car? Ensure you read the small print on PCP and motor finance agreements. Headline rates on PCP and motor finance agreements can at first look attractive, but these can easily distract from the fact that essentially, these payment plans are lease schemes. You will have effectively hired the car for a period of time while you make repayments. At the end of the agreement, you will typically have to make a balloon payment in order to actually own the car. There can also be a raft of fees and admin costs. These agreements can also be very inflexible. For example, with a PCP, you will need to be conscious of the mileage you are racking up and service history, because the guaranteed minimum future value (GMFV) of the car will have been calculated with your annual mileage in mind. So ensure you read all of the fine print if you are considering this finance option. Remember, that with a credit union car loan, there are no hidden fees, and you own the car outright, which you are free to drive as much as you want and sell on at any time you wish. For more, see on our blog on PCPs vs credit union loans.
Treat yo’self! With all that financial good behaviour, don’t be afraid to treat yourself from time to time. If there’s a little extra left over one month, reward yourself by spending a little on you. Treating yourself when you can will make it easier to stay in financial shape long-term!
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And remember, your local credit union also stands ready to provide any finanical assistance you might need in the year ahead.