How to get finances back on track

How to get finances back on track

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Keeping your finances under control is never easy, and learning how to manage money often comes with a few tough lessons along the way. However, by following these steps and coming up with a plan, you’ll be able to figure out how to sort your finances out and start towards your saving goals.

How to manage money

The best way to manage your money is to start by setting a budget. Next, you should look for ways to reduce your outgoings on debt (e.g. balance transfer cards and increased loan repayments). Lastly, you should set a goal to give your saving a greater sense of purpose.

How to manage money

The best way to manage your money is to start by setting a budget. Next, you should look for ways to reduce your outgoings on debt (e.g. balance transfer cards and increased loan repayments). Lastly, you should set a goal to give your saving a greater sense of purpose.

1. Set a budget and stay organised

Setting a budget and keeping track of your money is the best place to start if you’re looking to get your finances back on track. By having a budget and making a note of how much you’re earning and spending, you’ll also be far better placed to avoid unnecessary spending. Added to this, you’ll also feel more at ease with your finances rather than having the constant fear of checking your bank account without knowing how much you have left for the month.

You can put together your own monthly budget using our downloadable spreadsheet here:

How to plan a monthly budget

2. Look at balance transfer cards

Balance transfer cards can be a great way to stop paying high-interest fees on credit or store cards. If you find yourself in debt with a lot of money on cards like this, it can be hard to get away from as the interest is often as costly as the minimum monthly repayments. However, balance transfer cards can solve this problem quickly and painlessly.

Essentially, a balance transfer card will allow you to move your debt to another company at a lower rate - often 0% interest - meaning you can focus on paying off the debt rather than worrying about the interest as well. When you get a balance transfer card, the company pays off the debt and you then start paying them back instead of your old provider.

There are a few points to consider when getting a balance transfer card. Because of the very low rate of interest they offer, there are often quite strict conditions when it comes to using the card and paying back the debt. For this reason, you should try to follow these rules:

  • Always pay at least the minimum repayment amount. Fees for missing or underpaying are high, and some companies may even increase your interest rate if you don’t meet your minimum payments.
  • Check how long the deal lasts for. A lot of providers will have a 0% rate to begin with, but the rate will then jump considerably a few months after you join. You can always switch again before the change in rate.
  • Don’t use the card for spending. The costs for using your balance transfer card to spend or withdraw money tend to be very high as the cards aren’t designed for this. If you do happen to use it to spend, try to repay off the full remaining amount before the next repayment date.

Take a look at what deals you could get on a balance transfer card here.

3. Try and pay more on your credit cards

Although it’s tempting to just pay the minimum repayment amount for credit cards and other debts to make your monthly budget stretch a bit further, you should keep in mind that this will cost you a lot more in the long run.

For example, say you have a debt of £2,000 at an interest rate of 20%, and the minimum repayment amount is £35 per month. If you choose to only ever pay back the smallest possible amount, it’ll take you over 15 years to clear this debt, and you’ll end up paying nearly £4,000 extra in interest.

If you decide to pay £100 a month instead, it’ll eat up part of your monthly budget, but you’ll be free from this debt in just over two years and would have paid just about £450 in interest payments.

Minimum £35 payment£100 payment
Time taken to repay debt15 years and 5 months2 years and 1 month
Total interest£4,447£453
Total cost of debt£6,447£2,453

The table above shows the difference in time and costs if you only pay the minimum repayment amount compared to a slightly higher figure. Of course, you won’t be expected to pay off enormous chunks of your debt each month, but think about what you can realistically afford and how long you want to be paying off your debt. You should also consider that this example doesn’t include compound interest, which can add up considerably over time.

4. Reduce your loans and overdrafts

Getting rid of your loans and overdrafts is another great way to get your finances back on track. It can be easy to see an overdraft as an extension of your money but in reality, it’s just another form of debt that so happens to be attached to your bank account. Even arranged overdrafts can be costly, with one worth up to £500 costing at least £70 over a 12-month period, and if your overdraft is higher, it’s likely you’ll be paying much more to cover the costs.

Similarly, loans have a habit of costing much more than advertised. Even though most loans are promoted as having an APR between 2.8% and 5.5%, the average loan in the UK ends up with an APR of around 7.0%, meaning that you’ll end up paying 150% more in servicing costs than you’d have expected to when taking out the loan.

For this reason, paying off your loans as quickly as possible will help you avoid extra charges and allow you to start saving for yourself rather than simply paying off lenders. If possible, you should also see if you can change the terms of the loan so you get a better rate, but be aware that changing rates could lead to an extra charge.

5. Switch account providers

Changing to an account that better suits your needs can be a great way of getting rid of extra costs that are holding you back. One problem that people have with their bank account is that they’ll often miss bills as they have no way of budgeting for them, and once they miss it, they’re hit with an additional late payment charge.

However, with a thinkmoney Current Account, you can budget your bills easily so you never miss a payment. Additionally, there are no late payment charges, meaning you can start saving without needing to worry about the extra charges piling up.

6. Don’t fall for pay-later schemes

There has been a rise in the number of pay-later schemes available at retailers in the UK, with some common examples being Klarna and Laybuy. Although these schemes might be attractive because they let you buy something and pay later, in reality, they’re just another form of credit. For this reason, the missed payment fees can be really high, and the records of them will go on your credit report.

If you see something like this as an option when heading to pay for something you’re buying, stop and ask yourself if you could afford it without paying later. If the answer is yes, then there’s no need to put off the payment for another month, and if the answer’s no, then you should think that it’s unlikely you’ll be able to afford it next either.

Should you find yourself answering no to the question but you find you still really want to make the purchase, see if you can work it into your monthly budget rather than using a pay scheme.

7. Picture your goals

Saving without a particular goal in mind can be tricky, as it’s tough to get motivated to save if it seems like you’ll never get rewarded for all your hard work. When setting out your budget and saving plan, take a moment to think what you’d like to save for and start keeping this in mind throughout the month. You’ll find it far easier to watch what you’re spending as soon as you picture this goal.

The goal can be big or small - it just depends on what you want and how long you’re prepared to save. If it’s the first time you’ve tried saving like this, you might be best off starting small. See how long it takes you to save £100 and then spend it on something that’ll make your life better. From there, you can judge how long it might take you to save up a larger amount and how long you’d be willing to keep saving.

Want more help with your budgeting? A thinkmoney Current Account could be the ideal way for you to get your finances back on track!