Five steps to debt-free living

Borrowing money can cost you a small fortune, unless you take these five precautions.

Did you know, according to Credit Action, we Brits shell out a staggering £182 billion in interest on our debts every single day? But instead of lining the banks' pockets, I think we should all be making our debts as cheap as we possibly can.

Here are five easy ways you can do just that...

1. Set yourself a goal

We would all love to wave goodbye to our debts sooner rather than later. The first step you should take to achieve this is really simple: start our Destroy your debt goal. Here you'll find all the help you need to clear everything you owe as quickly and cheaply as you can.

For example, we explain how to start a spending diary and make a budget, so you can calculate exactly how much spare cash you have available to attack your debts once your everyday living expenses have been taken care of. You can then set about taking some decisive action to get rid of those debts forever! Onto step 2...

2. Pay zero per cent on your credit card

I know it's nothing new but taking advantage of 0% balance transfer deals really is the best way to get on top of your credit card debts. Long-time front runner, Virgin Money is still offering the most competitive balance transfer deal with 16 month's interest-free credit in return for a 2.98% transfer fee.

If, like many lovemoney.com readers, you have already had a Virgin card, try the Santander Credit Card instead. This card offers an interest-free deal which is almost as good at 15 months (a 3% transfer fee applies).   

At the end of the 0% period, get ready to move any remaining balance you haven't managed to clear to a new 0% card, before the much higher typical APR kicks in.

3. Pay zero per cent on your current account

Overdraft borrowing can be difficult to get rid of when your finances are already a little overstretched. But instead of racking up interest charges each time you go in the red, think about switching your current account to a cheaper alternative.

These days you can enjoy a temporary interest-free overdraft by switching to a bank which offers a 0% facility. I like Alliance & Leicester Premier Direct Current Account, Alliance & Leicester Direct Current Account and Abbey Preferred Overdraft Rate Account. All of these accounts offer 0% overdraft borrowing for a year, as long as you can pay in £500 a month (with Alliance & Leicester) or £1,000 a month (with Abbey). Bear in mind that interest charges will apply after this period, so try your best to get back in the black as soon as you can.

If you're quite happy with your bank, and quite frankly can't be bothered with the hassle of current account switching, you could try a money transfer instead. As well as 0% balance transfers, you can also use the Virgin Credit Card to make interest-free money transfers where cash can be moved into your current account to clear your pesky overdraft. You'll then have the same 16 month period to pay off the money transfer, but you'll have to shell out a 4% fee for the privilege.

4. Get snowballing!

This has got absolutely nothing do to with the festive season and everything to do with being a savvy borrower! In another step towards achieving the Destroy your debt goal we explain how to snowball your debts.

Snowballing is a simple enough concept which means your most expensive debts get paid off first. Find out how to do it here.

But don't forget you must, must, must keep up with the minimum repayments on all your borrowings, otherwise any interest savings you make will be completely wiped out by late payment charges.

5. Get advice

Before the financial crisis struck, banks seemed happy to dole out credit like sweets. It's therefore not entirely surprising that some borrowers are rather more indebted than they might feel comfortable with. If that sounds like you, don't despair because help is at hand - and it's free!

If you have a question about managing your debts, why not post it on our Q and A tool where other knowledgeable lovemoney.com readers are only too happy to help. And don't forget there are plenty of debt charities which can give you free one-to-one guidance. Check out our Get out of debt video where we investigate the best places to go for advice.

More: Write off your debts | The eight biggest debt myths