The news that consumers will be starting 2014 with an average of £2,875 of credit card debt could be enough to make many consumers take another look at their finances this January.
Our tips can help you make sense of an overcrowded personal finance market and save you some money in 2014.
1. Make the current account switch
The introduction of the Current Account Switch Service in 2013, otherwise known as the 7-day switching guarantee, did not really have the kind of impact that it should have had. Almost rock-bottom interest rates have meant that most consumers are getting very little return on their savings, so it’s certainly worth shopping around to find a high-interest account if you’ve got the savings.
Even the £2-per-month 123 account from Santander has an interest rate of up to 3% if you have savings between £3,000 and £20,000. For those with savings around £2,500 or less, the Nationwide FlexDirect account offers 5% AER.
These accounts are also easy access, meaning you can take your money out whenever you like. Fixed rate bonds can offer better rates than the best high-interest bank accounts, but they require you to leave your money with them for at least a year. However, it’s likely that we’ll see the Bank of England increase interest rates over the next few years, which would mean that your fixed rate bond’s AER will depreciate.
If you don’t have enough money to put back into savings each month, then it could be worth taking up some of the cashback offers available. Natwest’s Cashback Plus may only offer 1% cashback at a limited range of retailers, but it’s a sign of things to come and with Lloyds recently joining in with their own cashback scheme, we may see the cashback current account market becoming more competitive, and thus more rewarding for consumers.
You can now switch over your direct debits and income to a new current account within 7 working days – most high-street retail banks are taking part in the scheme – and you can even select a date that is most convenient to you.
2. Check your credit rating
Before you consider taking out new credit in 2014, it could be worth the time and relatively low-fee to know what you can and can’t borrow. If you already know that your credit is in great shape, you may still want to know how much risk there is of you becoming a victim of identity fraud.
Credit reports can also offer protection from identity theft by alerting you if anyone tries to take out credit in your name.
If you’re not sure of your credit score then getting a report can help you understand what types of credit cards might be available to you and how likely you might be approved for an overdraft, loan, mortgage or even a new mobile phone contract.
As a start, if you think your credit rating may not be so good, and even if it is, make sure you’re registered on the electoral roll for your current address and set up direct debits for your credit card bills to ensure you never miss a repayment.
3. Consolidate your debt from Christmas 2013
Many people will have paid for presents on credit and possibly racked up debts far higher than they can usually manage in January.
There are several balance transfer credit cards offering 0% for over two years, meaning you can make the smallest repayment possible without accumulating further interest.
However, you should really aim to pay the most you can each month to ensure you clear the balance within the 0% period.
If you also had to dig in to your overdraft then the MBNA Platinum will allow you to transfer over that debt as well as any other credit card debts you’ve got.
Meanwhile, if your finances are generally in good shape but you’d like to pay less for your Christmas bills then you could got a relatively short-term balance transfer card that has other benefits to use once you’ve cleared your debts.
The Lloyds Bank Avios Rewards card offers 13 months 0% on balance transfers, but once you clear that you can get up to 1.25 Avios per £1 spent.
Despite the £24 annual fee and the 22.7% representative APR, the card can cater for those with good credit scores who also want to consolidate their balances, pay them off and then get some rewards later.
4. Put the January sales or rail travel on a 0% card
You may be one of the lucky ones who escaped the Christmas period financially unscathed. If so, a 0% purchase credit card can be a cost-effective way of making a big purchase or two during the January sales.
For consumers who want to stretch out payments for over a year, there are several options, so, credit score withstanding, you may as well go for a credit card that also gives you something back.
The Tesco Bank Clubcard credit card offers 16 months 0% interest on purchases and up to 5 Clubcard points per £1 spent.
You could also use a 0% purchase card to ease the pain of buying a new rail season ticket. With fares increasing you can stretch out the payments over a year and save some money on buying monthly or weekly passes.
5. Join the crowdfunding crowd
Crowdfunding investments were making waves in 2013 and look set to become even bigger this year with more avenues for consumers to get their money working.
Peer-to-peer loans are perhaps the most popular of the bunch with companies such as Zopa allowing consumers to lend and borrow from each other. Consumers can lend, or rather, invest their money and watch it grow at a slightly better rate than many high-interest accounts, and the borrowers get a loan at a competitive rate.
The industry has proved to be a success in recent years but some consumers have also failed to get a return on their investment, so beware of the risk involved. If you’re lending the money to a fellow consumer, you’re not always guaranteed that they’ll be reliable with their repayments or that they won’t need to default. However, the Financial Conduct Authority is set to impose stricter controls over crowdfunding and peer-to-peer lending from April 2014.
Before you put your money in an investment, including any peer-to-peer loans, weigh up the risks and decide whether the return, if any, is worth it for you. Either way, it’s an area of the personal finance market worth keeping an eye on in 2014.