Borrowing wisely makes a big difference

By using credit wisely and choosing the right way of borrowing, people could be better off by hundreds of pounds, says Which?

The start of the new year is a great time for people who have overspent at Christmas to spend a few minutes sorting out their finances, so which.co.uk has put together the following top tips for borrowers:

Store card interest rates can be as high as 30 per cent. If you’re tempted by a 10 per cent discount when you take out a store card, pay the money back in full when you get the first statement to avoid interest charges.

Don’t be scared of interest-free credit for expensive items, but check there really is no interest to pay.

A credit card that charges 0 per cent on new purchases can be a good bet. Make sure you pay the money back before you’re hit by much higher standard interest rates.

You can transfer debt from one credit card to another. There are still a couple of cards that don’t charge the typical 2 or 3 per cent for each transfer. Watch out for cards that don’t have a maximum transfer fee – other cards cap fees at £50 or £100.

Personal loans have some of the lowest interest rates but are best used when you want to borrow a large sum of money over longer periods, as rates are higher for smaller amounts.

However the longer you take to repay debt the more interest you’ll pay.

Watch out for payment protection insurance on credit cards and personal loans. It is unnecessary and expensive and gives limited cover.

Your home is at risk if you secure a loan against it. Use your home as security only as a last resort.

Malcolm Coles, Editor, which.co.uk, says: “Many of us will have overspent over the festive period, or be planning large purchases in the January sales, so it’s a good time to sort out our finances.

“It’s really important to shop around to make sure that you get the best deal on credit. For those who already owe money it’s very easy to transfer existing card balances to a credit card with a lower interest rate, but consumers should check the terms and look out for transfer fees to make sure that they know how much it will really cost them.”