Debt enquiries expected to surge

With many consumers looking to reduce their New Year debts, Richard Napier, Nationwide's head of credit cards and personal loans, talks about the options consumers have to help them get over their Christmas debt hangover.

"Citizens Advice Bureaux across England and Wales are dealing with an ongoing increase in debt problems. Their most recent figures show that debt problems were up by 26% when comparing July - September 2008 with the same period in 2009.

"In addition, the number of those looking to consolidate their debt in the post New Year period is also expected to rise - for example, in January 2009 alone, almost 60% of all loans issued were for debt consolidation purposes.

"With Christmas over, some people will be thinking about how they had spent too much money over the festive period.  For some, this will simply mean tightening their belts for a while and cutting back on a few luxuries.  But for those already in debt, the New Year can signal greater money worries.

"Money worries are made worse if the debt is spread across many sources such as credit and store cards, overdrafts and loans.  So if you have several outstanding debts, what is the best way to reduce that debt to avoid a Christmas debt hangover?  Today, we look at how debt consolidation at a reasonable interest rate can help people manage their finances that much easier.  Consumers should consider all borrowing options carefully and seek independent advice if they require more assistance.

Credit card balance transfers

"A balance transfer is something that many of us have heard of, but may not fully understand how to use them to our advantage.  Basically, this is when the outstanding balances of several credit cards are transferred onto one credit card.  The debt is then repaid on that one credit card at hopefully a lower interest rate.

"Many credit card providers will offer 0% balance transfers.  But it's worth noting that different card transactions are charged at different rates.  So while you may pay 0% on balance transfers, you could still typically pay 16.9% APR2 on ongoing purchases and more on cash advances.  Most credit card providers will then not allow you to pay off the more expensive interest until the cheapest interest is paid off first.  Exceptions to this rule are Nationwide and Saga, as their credit cards offers a positive order of payments where the most expensive debt is paid off before the less expensive debt.  Depending on your circumstances, this could save you £224 every year.

Additional mortgage borrowing

"Mortgages aren't just for houses.  With additional mortgage borrowing, existing debts could be rolled into lower and more manageable monthly mortgage payments.  So if you already have a mortgage, it may be worth speaking to your mortgage lender to see how they can help you.  However, it's worth noting that, depending on your circumstances, this method may cost more and take longer to pay off the debt than if you took out a shorter term personal loan.  You should also think carefully before securing other debts against your home, as it may be repossessed if you do not keep up repayments.

Personal loan

"Where do you go for a personal loan which will offer a competitive interest rate backed up by good customer service?  After scouring the Internet and comparison websites, many of us will be attracted to adverts which show a low typical rate.  However, when we apply we're not offered the rate advertised but something which could be considerably higher.

"But are we missing a trick?  How many of us would think to approach a provider that they already have a relationship with, for example, where you might have your current account, mortgage or rainy day savings?  It is possible that, if you choose a provider where you already have a relationship, you could obtain a more favourable interest rate.

"Nationwide offers a rate of 7.6% APR typical on loans between £7,500 and £14,999 for up to five years for main FlexAccount customers.  This makes it the most competitive and lowest on the high street and is available through all channels - in branch, telephone and internet."