Debt headache? Reboot your finances for the new year | Money

Did you blow your budget in December? In a few days’ time, the first set of post-Christmas credit card bills will land on doormats – and for many they will not make pleasant reading.

The average Christmas credit card bill is estimated to be £323 which, when added to existing debt, means a typical Briton has started 2019 owing about £740 on their credit card, according to price comparison website MoneySuperMarket.

If you are in serious financial difficulty, then seek free advice from an organisation such as National Debtline as soon as possible. However, if your situation is not so dire – perhaps your plastic took a pounding in the run-up to Christmas or you splurged in the sales – there are things you can do to get your finances on to a better footing.

Cut your credit card costs

Many people with existing credit and store card debt could save hundreds of pounds or more by transferring these balances to another provider offering a better rate.

Not surprisingly, the start of the year is usually the most popular time for switching card balances. Last January was the busiest in 12 years, with £1.63bn switched in 31 days, according to TotallyMoney.

This is traditionally a very competitive market, although providers seem to be reining in their generosity a little. A year ago, you could get balance transfer deals offering 0% interest for up to 38 months, but the longest period available now is 33 months, says the financial research firm Defaqto.

The main benefit of a 0% deal is that all of your monthly repayment goes towards clearing the outstanding balance, and therefore the debt can be cleared much more quickly – but you do need to be disciplined. Also be aware that there will often be a fee to pay, which is typically a small percentage of the amount of debt being moved over.

Various credit cards and bank cards

January is usually the most popular time for switching card balances. Photograph: Alamy

MBNA is offering 0% interest for 33 months on balance transfers, where the fee is 1.99% – that is, £19.90 per £1,000 transferred. Similarly, Post Office Money is offering 0% for up to 32 months, with a 2% fee.

Not all deals involve paying a balance transfer fee. For example, Santander has a card offering 0% for 27 months with no fee.

If you take the average credit card debt of £2,663, someone who transferred this to a 0% balance transfer card with an interest-free period of 27 months and then repaid £100 a month, so that their debt is paid off within the interest-free period, would typically save £880 in total, according to the website GoCompare.

But woe betide you if you are late with a monthly payment or otherwise breach the terms of the deal. And not everyone who applies will be offered the advertised rate – some will be offered less favourable terms.

Get a better overdraft deal

If you are not getting a good deal, think about switching. Authorised overdraft costs vary hugely: some banks impose daily fees, some impose monthly charges, some charge interest, and some use a combination of these.

The good news is that a radical shake-up of the way banks charge for overdrafts is on its way. The Financial Conduct Authority’s plan is that the current plethora of fees and costs will be swept away and replaced by a simple, single interest rate. However, the new rules are not due to come into force until December.

People doing last minute Christmas shopping on Oxford Street, London

Overspending in the sales will have left some consumers overdrawn. Photograph: Kirsty O’Connor/PA

In the meantime, many banks have overdraft calculators on their websites, so log on and compare what you would be charged at other institutions.

Take the example of a standard current account-holder who borrows £500 on an authorised overdraft over seven days. If they are a NatWest customer, they will be charged £7.75 (£6 monthly fee and £1.75 interest). App-based bank Monzo will charge them £3.50 (50p a day). Meanwhile, if they are a Barclays customer, it’s £5.25 (75p a day up to £1,000). However, if they are a Nationwide customer and hold its FlexAccount, it will be a lot less: £1.67 in interest. And a First Direct customer pays just 71p in interest.

Debt consolidation can work – for some people

If you are juggling various costly debts such as store card and credit card borrowing, you may be able to save money by consolidating them into one cheaper personal loan, where the monthly repayments remain unchanged and the debt is guaranteed to be gone by the end of the term. This is not an answer for everyone, but for some people it will work.

There are best-buy personal loan deals available at less than 3% from the likes of M&S Bank, Cahoot (a division of Santander), Clydesdale Bank and Zopa. However, only applicants with a clean credit record are likely to get these headline-grabbing rates.

Switch to a better current account and earn cashback and/or more interest

This week, HSBC kicked off this year’s battle for bank account customers by offering up to £150 in cash in an attempt to persuade people to move to it using the free-to-use “current account switch service”. You can pocket £150 if you sign up for HSBC’s Advance Bank Account, or £75 if you opt for the Bank Account. Meanwhile, First Direct is currently offering switchers £100 cash and a £250 interest-free overdraft as standard.

If you keep your current account in credit and rarely, or never, dip into the red, you will probably be looking for a good in-credit interest rate.

Nationwide’s FlexDirect pays 5% AER on balances of up to £2,500 for the first 12 months, and 1% after that. TSB’s Classic Plus account pays the same rate on balances up to £1,500, while Tesco Bank’s current account offers 3% AER on balances up to £3,000. In all cases, terms and conditions apply.

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