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If your pay is hit during recession, new cheap credit is near impossible. Money Saving Expert Martin Lewis is yelling "Do a debt audit NOW!" to cut costs asap
There's now no doubt that we're heading into a recession, and that means possible job losses or pay freezes. If you're impacted it will make getting cheaper credit much more difficult, which means anyone with debts now should act quickly to cut the costs, so they'll be less of a burden.
A debt audit means running through all your debts step-by-step to evaluate how much they cost and what you can do to cut them down.
Step 1: Pay off debts with savings
If you have savings or ANY spare cash, throw it at clearing your debts as in nearly all cases, the interest cost is much higher than the interest earned on your savings.
Plus, with mortgage rates so high, paying more off your mortgage is actually a bit like saving at the mortgage rate, but tax-free; for most people this is the best thing to do with spare cash, and totally safe. See the useful links section for a full guide and a special calculator to work out whether it's right for you.
Better still, by reducing its size it'll improve your chances of qualifying for a better deal when it's time to remortgage.
Step 2: Balance transfer old debt to cheaper new credit cards
If you've got existing debts on a credit card, the most important weapon is a balance transfer. This allows you to shift debts to another card at a cheaper rate, so you now owe the new card the money but hopefully at a much, much lower interest rate.
By cutting your interest rate, more of your repayments will actually go towards paying off your debts rather than the interest that's constantly accruing. For a full guide to all the 0% deals and other useful cost cutting measures available, see the useful links section.
Step 3: Cut the cost WITHOUT new credit
Sadly while saying "get a new balance transfer card" is easy, for all but those with decent credit scores, you're likely to get rejected. Yet even if this happens to you, there's still hope.
Lots of credit card companies have hidden offers available to existing customers. Just call them up and ask "will you give me a cheap deal if I shift debts from other cards to you?" Many will say yes. For example, Barclaycard currently gives existing customers 6.9% for life on debt shifted to it.
See the useful links section for a step-by-step guide on how to do this and how to negotiate a cheaper rate.
Step 4: Remember, overdrafts are debts too
Many people try and pay off their credit cards from their overdraft, yet if the overdraft is at a higher interest rate that hurts, not helps. Worse still, if it leaves you accruing bank charges, this is far more expensive than just paying interest on the credit cards.
So check the interest rates on both, and if the overdraft's more expensive, only make minimum repayments on the credit card, and allow any income to clear the overdraft first.
Even better, a number of banks also offer 0% overdrafts for the first year to new customers. See the useful links section for how to find one.
Step 5: Loans are very difficult to switch
Most loans rates are fixed at outset. Yet rates have jumped heavily in the last couple of years, so unless you got a really bad deal in the first place, it is very unlikely you can cut the cost of your existing loan.
Step 6: Pay off debts with the highest interest rate first
Line up your debts and then throw every spare penny at paying off the one with the highest interest rate. Make just the minimum repayments on every other card, then when the most expensive is cleared, move on to the next costliest. This way you'll be rid of the debt much, much quicker and it'll cost significantly less.
