It’s that time again, but rather than giving up something in the name of self-improvement, why not resolve to gain something: more money in the bank.
Many of us mean to take control of our finances, but never get round to it. You could save a fortune, however, if you deal with debts, organise your money and wise up to making more from savings.
Firstly, if Christmas damage is limited to an ornament demolished by an overexcited grandchild, you’ve got off lightly.
More serious harm is likely to have been done to your bank balance, particularly if you have been putting everything on credit cards. This time last year, research from the Money Advice Trust, which runs the National Debtline, found that one in ten people were still paying off their Christmas debt from a year earlier.
Don’t worry. You can get yourself back on track by following these tips. So, out with the old financial bad habits and in with the new good ones!
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Money savers
Deal with debt
The first step to dealing with debt is to tot up what you owe – and start to budget. If you don’t budget each month, now is the time to start: you’ll instantly see where you can make savings. Put the money saved towards paying down your debt.
If your debt is on a number of credit cards, after ensuring that you have made the minimum payment to avoid penalty charges, concentrate on paying off those with the highest interest rate first.
Set up a direct debit for the minimum payment for your credit card and this will stop you getting penalty charges for missing a payment. Pay as much extra on top of the direct debit as you can afford, to bring your balance down faster.
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Transfer debt
If you have a large amount outstanding, converting to a personal loan could work out cheaper. This isn’t always the case but it is worth investigating.
Alternatively, you could consider moving your credit card debt to a card that offers a better interest rate. But don’t forget to factor in any ‘transfer fee’ (as much as 3% of the amount outstanding), and continue to make payments of as much as you can afford, not just the minimum.
If you have a 0% interest card and you don’t pay more than the minimum each month, do put money aside in a savings account to pay off the debt at the end of the deal. Figures from the Financial Conduct Authority show that fewer than half of those taking out a 0% deal pay the debt off before the deal ends. And 29% have still not paid it off six months later.
How to use balance transfer deals
Cancel unused payments
January is a great time to commit to going to the gym. Be honest, though. Did you sign up last year and only go twice?
If you are a dedicated couch potato, perhaps the occasional visit to the local leisure centre would be better than paying for a gym you never use.
Get shopping discounts
When taking out financial products, shopping or eating out, use cashback schemes and vouchers to save money. You can either sign up to a scheme such as TopCashback.co.uk or Quidco.com to collect financial rewards, or simply search online for vouchers and offers before you buy an item or visit a restaurant. Just Google the name of the retailer and the word ‘voucher’ and see what comes up.
Find out more with our guide to cashback websites
Switch utility providers
Check whether you are getting the best deals on your broadband and domestic fuel and switch providers if necessary. Remember to check that you’re not liable for an exit penalty.
Money controllers
Guard against a bad credit rating
If you haven’t checked your credit rating recently, it is a good idea to do it now.
Keeping tabs on your report – also known as credit history or credit file – also helps you check no one is taking loans out in your name, called identity fraud.
It’s best to check online – although you can phone – with the main credit reference agencies (Experian 0344 481 0800, Equifax 0845 603 3000). Also check that your record is up-to-date and free of inaccuracies, such as your address details or accounts that are now closed.
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Close unused accounts
Accounts you rarely use can not only harm your ability to get credit – because you may look as if you have too much access to borrowing – but can be a fraud risk because you may not notice untoward activity on accounts you don’t check.
Protect savings
If you want full protection on your savings from the Financial Services Compensation Scheme, reduce the amount you have in any one bank or building society to the maximum protected deposit of £85,000.
Check your state pension
The state pension age is changing – and many people are being taken by surprise by the new arrangements.
If you aren’t yet claiming your state pension, make sure you know the date from which you can claim and obtain a forecast of how much you will be able to get. If you are still working and don’t need your pension, you could consider ‘deferring’ – delaying the date you start to claim – in exchange for a higher weekly amount.
Could you boost your pension by deferring it? Read Paul Lewis' guide here.
The rules on this are changing too, with different rules applying for those reaching state pension age before and after this April, when the new pension rate is being introduced. Make enquiries in plenty of time so that you can arrive at the right decision for you. Go to gov.uk/state-pension-statement.
Money makers
Switch bank and card accounts
There are some amazing deals on interest-paying current accounts, so switch your bank if it would be worthwhile.
Don’t be bamboozled into paying for an account when you can get the services you need free, but it’s really worth checking accounts that give you cashback on certain services – such as paying household bills by direct debit – or those that give you perks such as free insurance. You really do need to do the sums to make sure that you will benefit.
The same goes for credit cards. Even if you don’t need one of the eye-catching deals, such as 0% interest on purchases, you might benefit from a card that gives cashback, loyalty points or, like Saga’s Platinum card, makes no surcharge on overseas transactions.
Read more about switching bank accounts
Nicer ISAs
It’s ISA time again. In truth, it’s ISA time all the year round, and the cleverest people start contributing to their ISAs at the beginning of the tax year rather than towards the end. But somehow January onwards is the ‘ISA season’.
This year, in addition to more flexible ISA rules, there are some changes to the taxation of savings coming up that may influence how you invest.
You can invest up to £20,000 in shares or cash or both in the current tax year (2018/2019) – more than twice the allowance that could be sheltered from various taxes when ISAs were introduced in 1999. You can now put your entire allowance in cash if you want to. This is a significant change (and improvement) to the old rules where you could put the whole amount in shares but the amount you could hold in cash was capped.
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What are the different types of ISA?
And you can switch your savings from cash into shares and back into cash again. Previously you could switch only from cash to shares, meaning that those who were risk-averse were unable to exit a stock-market plan without losing their tax allowance. Now you can switch your money in whole or in part in either direction.
You also have the facility to withdraw money from an ISA and put it back again if you need short-term funds, as long as you don’t exceed your annual allowance overall.
Under the old rules you could pay in, withdraw and pay in again only if the first and second payments put in, when added together, did not take you over your annual allowance. Once you had paid in the maximum, you could not replace withdrawals. Now you can dip in and out if and when you need to.
Read our guide to transferring an ISA
Should you put ISAs on ice?
Those with smaller savings balances may be tempted to ignore ISAs, as from April savers will be paid interest gross (without tax taken off) and a new savings allowance is being introduced.
Under the new rules, basic rate taxpayers will be able to receive the first £1,000 tax free – higher rate just £500. Wealthier savers will probably still want to save within an ISA to protect their cash.
Even those with more modest savings shouldn’t ignore ISAs, even under the new rules.
An ISA wrapper protects investments from capital gains tax, as well as other personal taxes, and this can be a valuable shield if you might have other taxable gains in future, such as those arising from other investments or the sale of antiques or property.
Moreover, ISA protection is offered on a ‘use it or lose it’ basis. If you put your money in an ISA you can always take it out again, but once the tax year-end has passed you are prohibited from taking advantage of an unused allowance from any previous year.
Finally, a further change to the rules is the ability of spouses to inherit their deceased partner’s ISA. This means the tax-free status remains intact – an added bonus as a spouse cannot inherit their partner’s savings allowance.
Read more about inheriting an ISA from a spouse
If you have any doubts about the wisdom of using an ISA, it’s probably wisest to hedge your bets and use your allowance while you can.
For more information on ISAs as an alternative saving option, please click here.
12 ways to make some extra money
Action plan
• Add up all debts
• Work out a budget
• Move money around
• See where you can save
• Close unused accounts
• Spread taxable savings and investments between couples to make the most of tax allowances
• Track down lost accounts
• Use cashback and vouchers to save money<
The benefits of an ISA
• Flexible transfers between shares and cash
• ‘Replacement’ of withdrawals now allowed
• Shelter from capital gains tax
• Shelter of total amount saved retained even if amount increases year on year (unlike personal allowance)
• Transfer tax benefits to surviving spouse
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