Racked up holiday debt? Here’s what to do

Your holiday memories might be fading fast, but your summer debts won’t disappear nearly as quickly unless you tackle them head on.

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Most of us run up big debts while we’re on holiday.

Whether it’s paying for meals out or days at the water park, it’s all too easy to slip into a “worry about it when we get home” approach.

But now autumn is here, it’s time to start paying off what you owe. Confront your holiday spending now and you could clear the decks in time for Christmas.

You’ll also be in good financial shape to start thinking about paying for next year’s holidays.

Here’s how to take charge of your holiday debts:

Credit card debts

If you’ve run up big credit card bills this summer, the first thing you should do is find out what rate of interest you are being charged.

If you’re paying a high annual percentage rate (APR) on what you owe, then you should look to move your debt to a balance transfer card offering a long 0% introductory rate.

That way, you’ll be able to pay off what you owe without having to worry about interest mounting up on your debt.

Plenty of cards offer lengthy 0% deals. Barclaycard’s Platinum 32 months balance transfer card, for example, offers 0% for 32 months, and you’ll only have to pay a low 1.39% balance transfer fee.

After that the rate shoots up to 18.9% APR representative.

Representative example: If you spend £1,200 at a purchase interest rate of 18.9% p.a. (variable) your representative rate will be 18.9% APR (variable).

Keep in mind that you may be given a lower balance transfer offer and a different APR according to your personal circumstances.

Other top balance transfer deals include Lloyds Bank’s Low Fee Balance Transfer Offer card, which also offers 0% for 32 months, with the same 1.39% transfer fee. You’ll again be charged 18.9% APR representative when the introductory period ends.

An alternative to a 0% balance transfer deal is a card with a long-term rate of interest that is lower than typical standard APRs (the rates charged when the 0% offer comes to an end).

One such is the new MBNA Everyday Plus American Express card, where the rate is 7.4% APR (variable). This card has no fees for balance transfers or money transfers and no fees for foreign exchange transactions or ATM use, in the UK or abroad.

Representative example: If you spend £1,200 at a purchase interest rate of 7.4% p.a. (variable) your representative rate will be 7.4% APR (variable).

Remember that it’ll take you years to pay off any credit card debt if you only make the minimum payment each month.

Always try and pay off as much as you can afford to every month and you’ll see your debts shrink much more quickly.

Personal loan

If you’ve taken out a personal loan to cover summer holiday costs, check you’re on the best possible deal.

If you find a more competitive loan elsewhere, then you should switch and reduce the amount of interest you’ll pay.

The good news is that loan rates are really competitive right now. For example, Sainsbury’s Bank and Hitachi both offer rates as low as 4.4% APR representative if you’re looking to borrow between £5,000 and £7,499 over any period between two and five years.

Rates are even lower if you’re borrowing between £7,500 and £15,000.

If you find a more competitive loan elsewhere, then you should switch and reduce the amount of interest you’ll pay

If you are switching your loan, check first to see if your existing provider charges any penalties for moving – that could well influence your decision.

You should also ask your new provider if you can go for a shorter loan term. This may mean higher repayments, but you’ll pay off your debt earlier and pay less interest.

Overdrafts

If you’ve dipped into your overdraft this summer, check exactly how much you’re being charged.

Some current accounts won’t sting you for going into the red, but you’ll only have a limited time to get back into the black if you want to avoid charges.

Nationwide’s FlexDirect account, for example, offers a fee-free overdraft for 12 months. After this you’ll be charged a daily usage fee of 50p on arranged overdrafts of £10 or more, so you must be certain you can pay off what you owe in the first year.

Most accounts do however impose fairly steep fees for using your overdraft, so you’ll often be charged daily each time you use it.

These charges can soon mount up, so you might want to consider clearing your overdraft altogether using a money transfer credit card.

This type of card allows you to move available credit on your card across to your current account.

Many of these cards offer 0% introductory rates on money transfers for several months. This means that you can use this money to pay off your overdraft, therefore avoiding steep interest charges.

For example, MBNA’s Money Transfer card enables you to transfer money to your current account with 0% interest for 36 months. You have to pay a fee of 2.99% of the amount transferred.

Representative example: If you spend £1,200 at a purchase interest rate of 18.9% p.a. (variable) your representative rate will be 18.9% APR (variable).

You’ll have to be disciplined about paying off what you owe on the money transfer card. If you don’t do this before the introductory period ends, you’ll start being charged interest.

DON’T delay!

The only way you’ll get on top of your summer debts is if you take action as soon as possible.

Whatever you do, don’t neglect them. They won’t disappear, and before you know it Christmas, and all its associated expenses, will be upon us.

 

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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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