Should I refinance my credit/store cards?

An Aviva survey in December 2011 revealed that, of the average family's unsecured debts of over £10,000, a number of these attract high, ongoing interest rates or charges. They can be avoided if borrowers paid them off with a fixed loan instead. And depending on the sums and the time period involved, the potential savings can run into thousands of pounds. The following are the types of credit which can cost you a great deal in interest and fees, and which you should be looking to pay off as quickly as possible. STORE CARDS & CREDIT CARDS are particularly costly, of course – but do you realise just how costly? Unfortunately credit cards not only carry a very high monthly rate of interest, but the real problem is that they add interest onto the current balance every month, which is added onto the previous month's balance, and so on – this principle is called "compound interest". The survey revealed that the average family owed around £2,250 on credit cards and £750 on store cards, a total of around £3,000. So these are two debts which could save you a significant sum in interest in the future if they were paid off. BANK OVERDRAFTS are another area where you can end up paying hefty fees. It's costly being overdrawn in the first place, but if you then go over your limit, you'll find yourself paying an even higher rate of interest, with eye-watering charges for every transaction, and charges for the bank sending you a letter to inform you of this! There could also be charges for returning (or "bouncing" cheques), whilst other creditors may then charge you when their repayment doesn't arrive on time. It can feel like they're all ganging up on you! According to the survey, the average family owed around £1,000 in bank overdrafts.   DOORSTEP CREDIT, where borrowing is conducted via agents who visit clients' homes, also attracts very high rates of interest. These charges soar when repayments are missed. And if the loan looks like being repaid on schedule, then clients are often "persuaded" to borrow further sums, costing them more anyway! The amount owed across the country in "doorstep credit" is equivalent to £675 on average for every family. "REVOLVING FINANCE": this refers to certain credit deals which act like credit cards and add interest onto the closing balance each month. Typical products can involve double glazing and cars; if you have an agreement like this, it'll work out costly over a period of time!

SOME TYPICAL QUESTIONS & ANSWERS

Q:  So, you're suggesting that I pay off all my outstanding credit with a fixed-rate loan? A:  No, only those which attract ongoing monthly interest charges and/or additional fees. Paying off an ordinary fixed-rate loan or HP agreement would only benefit you if your loan was at a lower rate than  your current one – and you might be charged for repaying early, too! Q:  Isn't this just "robbing Peter to pay Paul"? A:  No, because you would save money if you repaid the types of credit listed: firstly, because fixed-rate loans generally have much lower rates of interest, and secondly, because you would be saving on future interest charges and/or fees. But withdrawing cash on a credit card to make another loan/credit card repayment would be very unwise! Q:  What is the cheapest way of doing this? A:  The cheapest method for homeowners would be a secured loan, although they could also opt for an unsecured loan at slightly higher interest rates. Tenants would only be eligible for unsecured loans, and even then, they would need a very good credit/employment history. Q:  What sort of amounts are we talking about? A:  For a secured loan, the minimum would normally be around £5,000. Unsecured loans would start from just a few hundred pounds. The maximum in both cases would depend on your personal circumstances and previous employment/credit history, of course. Q:  If I pay off my store and credit cards, can I still use them? A:  Yes, but you might be better advised to cut them in half – or perhaps put them somewhere safe for use in emergencies! Q: Can I apply for a loan for other purposes? A: Yes: cars, home improvements, business finance, etc. Just ask! Choice Loans can help you arrange either a secured loan or an unsecured loan to help you rebalance your finances and we do not charge any up front fees. To apply simply go to the linked pages or call us on 0845 1260350 for a no obligation chat This article was written for Choice Loans by Andrew Bramwell