Find Financial Freedom

I saw via MoneyWatch that the Financial Services Authority (FSA) has launched a new website - What About Money? - aimed at helping young adults (16-24) with their finances.  According to the about page:

This site is aimed at 16-24 year olds, to help you better understand money issues. It is part of our National Strategy for Financial Capability, which aims to improve the financial capability of consumers in the UK.

It includes a series of ‘Life Stages Guides’ such as Getting on the road, Getting on the road and Going to university. Unfortunately however the advice seems rather thin consisting of a top 5 need to know and doesn’t actually seem to explain the financial instruments involved - which surely is where the FSA’s advice would be most useful. After that it just links out to a number of external sites, seeming to place more of an emphasis on rating them than providing guidance.

The site seems to have been designed to be as unpleasant on the eye as possible, so I couldn’t bring myself to read it all.

I work as a mortgage broker, and in my time I have come across many clients who, surprise, surprise are in debt. Many of them have a number of credit cards, with maybe a loan in the background and an overdraft. They are usually all living beyond their means, however in some cases it has been because they were studying to better themselves. I am usually asked if I can help by re-mortgaging to reduce the monthly outgoings, at the expense of increasing the time it takes to repay the debt. This is usually a good thing to do, as the money they save on interest, they can use some or all to repay the debts quicker.

In some instances, the client’s have let me know that they’d been doing these 0% balance transfer deals on their credit cards, as they thought it would help them to reduce their debts by paying less interest. What has usually happened is that they have cleared some of the debt a bit quicker, but actually found themselves more stretched because the monthly payments have been bigger. That’s odd, isn’t it?

What most people (and even the so-called experts) fail to check when shifting debt from one card to another is the minimum monthly repayment required for each card. This can vary from 1% to 3% or more of the remaining balance.

So you can see how a balance of £5,000 shifted from a card charging 15% annual interest and requiring 1% of the balance as the minimum monthly payment would only cost £50 per month compared to a 0% annual interest balance transfer card requiring 3% of the balance as a minimum monthly payment would cost £150 a month.

That’s quite a significant difference in outgoings each month, which is ok if the budgets aren’t stretched, but more often than not, they are. Make sure that you check what the minimum monthly repayment is each month before signing up to a new 0% balance transfer card, unless of course, you plan on paying back a lot more than the minimum each month.