Got more money in your pocket than usual thanks to being unable to go anywhere or do anything? Don’t blow your advantage as lockdown eases.
With pubs and restaurants closed, holidays cancelled, quiet roads, cheap fuel and a housing market on hold, lockdown has brought additional reserves for some, even if income has been impacted.
So with the easing of lockdown, it’s a great time to splash the cash, right? Well, it could be, but think about this instead.
Lockdown has provided a once in a lifetime opportunity to take control of your borrowing, enabling you to put more money towards your debts, pay less in interest and pay them off faster. Boring? Maybe, but taking control now means you can enjoy the finer things in life year after year, instead of shelling out your hard-earned money on interest. Here’s how.
According to The Money Charity, the average person has a credit card debt of £2,595. If you owe £2,595 at an average 24.7% APR, the minimum payment is around £75 in the first month. Assuming you don’t borrow any more, this then reduces each month as the balance comes down. The more you borrow, the higher the minimum payment and while paying the minimum may seem affordable or is a way to keep cash free, it will take you longer and cost you more to clear your balance. Plus you are more exposed should something unexpected happen.
If you only make the minimum payment each month, it's going to cost you £4,604 in interest and take 27 years and 3 months to pay off.
BUT, if you were to pay just an extra £20 a month off this same credit card, you would save £2,860 in interest and pay it off 20 years and 4 months sooner.
Better still, fix your payments at £75, the same as that first month’s minimum, and you would pay off the debt in just 4 years and 8 months AND save £3006 in interest. It takes less time to raise a child to adulthood than the time you’ve saved on paying off your debt.
Just like all of those great habits of not spending you’ve been forced to get into, you can create new borrowing habits to go with them. No-one is saying you can’t enjoy the easing of lockdown, keeping those new habits going will mean a brighter financial future, where you enjoy borrowing less and paying off sooner for a lifetime.
If you feel you're in financial difficulty, you can find free, independent and confidential advice through the organisations listed on our Debt Helplines page.
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