How to clear Christmas debts

Published:
04 January 2012
Topic:
News,Money,Debt

Millions of people will have run up credit card debts and overdrafts to help pay for Christmas and must now count the cost of their borrowing.

The new year can be a worrying time for those who have borrowed to fund the festive season, especially with rising living costs continuing to take their toll.

According to MoneySupermarket research, an overwhelming 76% of people think their financial stresses are set to get worse in 2012, and if you are worried that your Christmas debts will be a major contributing factor, it's time to take action as soon as possible.

Here are our top tips for paying off what you owe as soon as possible...

Take advantage of balance transfer offers

If you have used credit cards to pay for Christmas and are paying a high rate of interest then you should move these debts to a card offering a 0% introductory rate on balance transfers immediately.

This will give you time to pay off what you owe without being hit by steep interest charges on top, although remember that only those with excellent credit histories will be eligible for the best deals.

The good news is that there has seldom been such a good time to transfer your balance, with cards now offering 0% introductory periods for as long as two years. However, you should of course aim to clear your debts in as short a time as possible, as you don't want to still be paying for Christmas 2011 long into 2013.

Barclaycard's new Platinum with Longest Balance Transfer card  offers 0% on balance transfers for 24 months, subject to a 3.2% handling fee. After the introductory period finishes, the card has a representative annual percentage rate (APR) of 17.9% (variable).

According to Barclaycard, the deal means that a customer transferring £3,000 from a credit card with an APR of 18.9% will save £935 in interest payments over the 24-month 0% introductory period.

Hannah Mercedes-Skenfield, credit card spokesperson at MoneySupermarket said: "This is a fantastic deal for consumers looking to consolidate existing credit card debt, but anyone going down this road needs to remember to avoid missing payments on the card or they risk losing their promotional 0% rate and could end up getting stung with hefty interest payments.

"To avoid this, customers should set up a direct debit to pay off at least the minimum amount each month. Like all providers, Barclaycard doesn't allow balance transfers between their own cards, so if you have an outstanding balance with a Barclaycard, you will have to look elsewhere."

Other cards offering generous 0% introductory periods include the HSBC credit card which provides 0% on balance transfers for 23 months subject to a balance transfer fee of 3.3%, although you must be an HSBC current account customer to qualify. After the introductory period ends, this card has a representative APR of 17.9% (variable).

Barclaycard also offers a 22-month balance transfer card with a lower balance transfer fee of 2.9%. The Platinum Credit Card with Extended Balance Transfer again has a representative APR of 17.9% (variable) once the introductory period ends.

Alternatively, Halfiax's Balance Transfer Credit Card also offers 22 months at 0%, subject to a 3.5% balance transfer fee, but you need a minimum income of £20,000 to qualify. After the introductory period ends the card has a representative APR of 17.9% variable.

Shorter balance transfer offers

The quicker you clear your debts the better, so for many people a card offering a much shorter 0% introductory period may be preferable. As long as you know you can clear what you owe within the 0% period, you will be free of your debts more quickly than if you go for a card offering a longer introductory period.

Cards which are worth a look include the newNatWest Platinum Special card which offers 0% on balance transfers for 13 months.

One of the biggest perks of this card is that it only charges 1% handling fee, while most balance transfer cards charge around 3% or more. After the 13-month introductory period is up this card has a representative APR of 17.9% variable.

Other shorter term options include the Barclaycard Low Fee card which offers 16 months at 0% and which has a representative APR of 18.9% variable after that. This card also has a low 1.6% handling fee.

Reduce overdraft costs

If you've gone overdrawn at Christmas and are paying steep interest charges and fees, then see if you can reduce the cost of being in the red by switching to a different current account.

For example, if you have the Halifax Reward current account and go overdrawn, you will be charged £1 a day. That means charges can mount up to a hefty £25 a month once you have deducted the £5 a month this account pays you.

However, if you switched your overdraft to the Santander Preferred current account, you wouldn't have to pay any interest on your agreed overdraft for 12 months.

After that you will be charged 50p per day that you are overdrawn, capped at 10 days per month. You will also get £100 cashback when you switch your main current account to Santander, but you must be able to pay in at least £1,000 into your account each month to qualify.

Make payments on time

It might sound straightforward, but whatever type of credit agreement you have entered into to cover the cost of Christmas, make sure you make payments on time, even if it is only the minimum, or you will be faced with additional charges.

Kevin Mountford, head of banking at MoneySupermarket said: "Setting up a direct debit for credit card repayments is essential as consumers should avoid missing payments at all costs, otherwise they will lose their promotional offer.

"Careful budgeting is essential to ensure people can pay off their Christmas debt quickly, and within the next 12 months - or they could be left paying for Christmas 2011 for many years to come."

Make a note in your diary of when any longer-term payments are due too so you don't forget about them. A spokesman for the Finance and Leasing Association said: "If you took advantage of buy now, pay later offers, organise your finances so that you can make the contracted repayments when they fall.

"Sit down and work out where you can make savings in your budget, so you can pay off these debts."

 Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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About This Author

Melanie Wright

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Financial journalist

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