Experts top tips for reducing interest payments

Author: Brian Weaver

Many people that take out a loan or use credit cards are often horribly surprised by the amount of interest that rapidly builds even on small amounts. Despite the fact that interest rates are clearly advertised, the reality is many people simply do not understand the jargon used. It leads to these people accumulating additional debt which can easily spiral out of control. Here we present some simple top tips from our experts to help you reduce your interest payments.

Reduce your interest payments

It is very difficult to consolidate your debt into a lower interest rate loan at present. However, you can still look to strike a deal.

Too many people leave credit card payments until the end of the month, when resources are dwindling

Karen Goodliffe, director of HerMoney, said you should ensure that the interest rate on your mortgage is competitive. “Some financial institutions are trying to entice homeowners onto their books with offers of cash back at present,” said Goodliffe. “If you are on a fixed or variable rate and are in positive equity, then you should approach your current provider about reducing your interest rate.”

Switching your credit card and moving your debt to a new issuer could save money. Chill Money recently started providing Mastercard credit cards and is offering nine months’ interest free on balance transfers. You will pay interest on any new purchases, however. The Chill APR is 22.9%.

“This only works if you don’t use the new credit card (for new purchases) and make sure you get rid of the old one,” said McGee.

PTSB offers 0% on balance transfers for six months and 0% on purchases for three months. It has an APR of 20.7% on its ICE card.

Liquidating your assets

If you come into money — whether through a gift, by selling off assets or cashing in investment funds — you should consider using the money to pay down your debt.

“I have come across a lot of people who have €10,000 ina bank account, which is earning 0.1% interest, and who have €10,000 with the same bank on a credit card and are paying 18% interest on it,” said McGee. He suggests using the €10,000 to pay off the debt and then using the money you would have spent on servicing the debt to build up your savings again.

McGee is not in favour of using lump sums to pay down mortgage debt. “There are many people out there with tracker rates and they are paying off the cheapest debt they will ever have,” he said. “If you pay a lump sum off your mortgage you have no way of getting it back without remortgaging. The only time I would suggest you pay off a mortgage with a lump sum is if the repayments are so bad on a month-to-month basis that you can’t cope. The lump sum in that scenario could bring your payments down to a manageable amount.”

McGee admitted it might make “emotional sense” to a person to pay off their mortgage. “It’s about having the best life outcomes. If emotionally you feel better, then do it.”

A little can go a long way

Increasing payments on flexible term loans, even by a little bit, can allow you to pay off your debt quicker.

“If you took out a five-year loan of €13,500 at 8% interest and paid €273.73 a month, it would be gone in five years. You would hardly feel an increase if you rounded it up to €300, yet doing this would reduce the term to exactly 4½ years. It knocks a whole six months off the term and saves you €224 in interest,” said McGee.

Our experts recommend following the above tips as soon as you are able in order to reduce the amount you are paying on your interest. It is very easy to ‘bury your head in the sand’ and try to ignore the debt that is piling up around you – however this is a very dangerous idea. Interest builds up rapidly and you will be much better off to address the issue head on and try to reduce the interest accumulated before it spirals out of control.