Cure Your New Year Financial Hangover

January 7th, 2008

Today is one of the busiest days of the year for people in the financial advice industry. The first Monday of the New Year is officially the day when people wake from their seasonal slumber and try to get their lives in order; invariably this includes seeking some form of advice regarding their finances in general – or more particularly, the dread of their impending January credit card bill has them suddenly breaking out in cold sweats, remembering the deluge of last minute, spur of the moment Christmas expenses racked up on their credit cards in the haze that was the lead up to the Big Day. If this sounds familiar, it’s time to take a look at your finances in the cold January light of day and get realistic about your inflated credit card balance. Here are my top tips for clearing your Christmas debts:

1. Interest free balance transfer credit cards
This comes in as number one because when handled correctly, it offers one of the most affordable debt-consolidation options available. Transferring your existing credit card debts onto a card that offers interest-free balance transfers for a set period allows you to reduce the balance without paying interest at the same time.
Watch for – Expensive transfer fees. Do your sums to ensure that you will be actually saving money by transferring your balance.
Best for – Relatively low amounts of credit card debt of around £5000 or less.
Best Buy – MBNA Platinum Plus Card – it offers a lengthy interest free period and a low 3% handling fee. Good acceptance rate. Use an impartial credit card comparison service to find the best option for you.

2. Use your savings
Racking up interest on a credit card debt makes little sense if you have money sitting in a savings account. Even if it is a high-interest savings account, the advantages are out-weighed by credit card debt interest charges, so use the funds to clear your debts then begin saving again.
Watch for – Withdrawal penalties. If your money is tied into schemes that are expensive to exit from and the credit card debt is relatively low, you might be better off considering a balance transfer credit card as above.
Best for – Smaller debts. The time and effort required for balance transfer credit cards and consolidation loans make smaller debts the perfect reason to dip into your savings; after all, that’s what it’s there for. Consider this a rainy day.

3. Consolidation loans
Consolidation loans are a dramatic way to deal with Christmas card debt, and should be considered for large amounts of debt of around £6000 and over. Rolling your debts into one large loan can simplify your finances, and you may pay less interest in the long-run, particularly if you consider a secured loan.
Watch for – The elusive low APR. The advertised APR is often only offered to borrowers with near-perfect credit ratings. Avoid the rejection spiral by applying to lenders that have less stringent acceptance criteria, and give yourself a greater chance of being accepted.
Best for – Large debts. If this Christmas has pushed you out of your credit card balance comfort zone and you are looking for a long-term solution, this may be the option for you. Suits bad credit candidates.
Best buy – This will depend on your financial circumstances and the loan size you are looking for, but both Moneyback Bank and Alliance and Leicester personal loans are a good option, particularly for those looking to consolidate a large amount of debt with a fairly good credit rating. Bad credit applicants should consider a secured loan option in order to secure the lowest interest rates possible - First Plus have reasonable acceptance criteria and affordable interest rates for people in this situation.