It’s a new year, so it’s a great time for a fresh start with your finances. If you’ve got existing debts, 2013 could be the year to clean the slate and get yourself on the road to healthier finances.
Paying off your debts
If you have credit card debts or existing loans you want to pay off, now could be the time to sort them out and get your finances in order.
It can be useful if you have debts across a number of different cards or loans.
By taking out a loan to pay off your debts, you’ll only have one monthly repayment – and one interest rate – to think about.
Plus, it could save you money in the long run. If the interest on the loan is lower than the interest on your existing debts it can be cheaper to pay off those debts with a loan.
So make sure you look at the representative APR (Annual Percentage Rate) – this gives you an indication of the rate of interest you may pay on that particular loan as this is the rate that most customers will pay for that loan.
But before you apply, make sure you check to see if there are any fees charged if you settle your existing debts. Some loans will charge a fee for early settlement, so make sure that doesn’t outweigh any potential savings you make.
Think about how much to borrow
Before you apply for a personal loan to help restructure your debts, first you need to work out how much to borrow.
It starts with the amount you’ll be able to pay back each month. If you know what you can afford to pay back, you’ll have a figure in your mind for the maximum amount you’ll be able to borrow.
A good way to work it out is to
target="_blank">use an online loan calculator
target="_blank">use an online loan calculator. Many banks offer these to help give you an indication of what you can afford.
Or if you’d rather do it yourself, it’s easy to work out a budget to see how much is left each month to pay back your loan.
Working out your budget
Start with a list of your monthly income. Include any benefits or regular payments as well as your salary.
Next, work out your essential expenses, so add up things like:
- mortgage or rent
- insurance payments
- loan or credit card repayments
- transport costs
- gas, electricity and water bills
Now subtract your expenses from your monthly income and you’ll have a figure for your disposable income. This is the amount you have left after you’ve taken care of all the essentials.
Take from that some money each month for non-essentials. So things like nights out with friends, cinema trips, eating out or going to the football.
Once you’ve allocated an amount to all the things you want to do, you’ll have a figure for what’s left each month – this is the amount you can afford to pay back.
And if you think you might need a bigger loan than that, try to identify areas in your budget where you can cut down so you can afford bigger monthly repayments.