Consolidate the hangover of Christmas debts and clear this New Year
With Christmas over, many people may be nursing a credit card hangover into the New Year. Consolidating and clearing those debts in a sensible way should be top of the ‘to-do' list, according to MoneySupermarket.
A recent MoneySupermarket poll found one in ten consumers planned to put Christmas spend on their credit or store card. For those who cannot afford to repay the debt this month, they should look to transfer their Christmas balance to a new zero per cent balance transfer card, and think carefully about how to budget throughout the year in order to pay off the debt quickly.
Kevin Mountford, Head of Banking at MoneySupermarket, said: "Now the festive season has been and gone, it won't be a Christmas card landing on the doormat for households but potentially a hefty credit card bill instead, serving as a reminder of the expense of Christmas.
"For people looking to tackle these debts, spending a few minutes reviewing your finances could make all the difference to your finances in 2013. Moving existing credit card debt onto a zero per cent deal is one option to help save money, but it is also important to consider how much you can realistically afford to repay every month in order to find an appropriate product- this will help to ensure credit card debts are cleared in the most efficient way possible. For debt accrued over Christmas, ideally people should look to pay off this debt before the next festivities, but for some people this may not be an affordable option so they have to look at all the options available."
For those looking to switch credit cards, MoneySupermarket offers the following top tips:
1. Plan a realistic budget to pay off debts. If you are looking to switch your debt to a zero per cent deal then aim to pay it off before the balance transfer period ends, and ensure you can afford the monthly repayments to clear the debt. Moving £3,000 to the market leading 24 month balance transfer card from Barclaycard Platinum credit card would save £618.07 in interest by repaying £129 per month over the two year interest free period.
2. Check the small print for transfer fees as many providers charge a fee when moving onto a zero per cent credit card e.g. NatWest and RBS both charge a 3.5 per cent fee on their Platinum Extended balance transfer credit cards.
3. Ensure you are able to transfer a balance. Anyone looking to switch credit card debt should check whether they are allowed to transfer their balance to a new provider. Some providers prevent the transfer of existing debt to other cards within the card issuers group. For example, Virgin cardholders cannot transfer a balance to or from another card from issuer MBNA Europe.
4. Check your credit rating. Make sure you have a good credit rating before applying for a credit card to avoid rejection or being offered higher rates than expected. Even a good or excellent credit rating may not necessarily guarantee card acceptance.
5. Switch to a low rate card - If you cannot afford to repay a debt on a zero per cent card within the zero per cent period then consider switching to a low rate credit card. Switching £3,000 to the market leading low rate credit card from Sainsbury's at 6.9 per cent and repaying £150 per month would take 22 months to clear the balance and save £325 in interest.
6. Check the credit limit you need. Even if you are accepted for a new deal, the credit limit you receive may not cover the entire balance you want to switch. If this is the case, then transfer as much as you can and then focus on paying off the remaining balance on your old card as quickly as possible while maintaining minimum repayments on the new one.
7. Paying off the balance. If you are unable to move your Christmas debt, then aim to pay off the balance as quickly as possible. Paying off £150 a month on a £3,000 balance on a card with an average rate of 17.33 per cent would take two years. If you have more than one credit card, then pay off the most the debt that is accruing the most interest charges first, but don't forget to pay at least the minimum of the other cards.
8. Personal loan options. For those unable to find a new card deal it may be worth considering a personal loan. A loan allows consumers to make fixed repayments over a set period of time which is ideal for anyone looking to budget. The best personal loan deals are only available to those with good credit histories. For those with poorer credit histories and equity in their homes, a secure loan may be another option.
9. Review outgoings. If you are unable to switch to a cheaper deal and cannot afford to service your existing borrowing then look at alternative ways of paying off your debts. Review all of your outgoings and try to free some cash which can then be used to pay off debts. Concentrate on repaying the debt with the most expensive interest rate first as this is likely to be costing the most.
10. Don't bury your head in the sand. If your debts are unmanageable then seek immediate help from one of the free debt advice services such as Citizen's Advice or Step Change who will be able offer help and advice.