January money troubles got you down? Andy Webb from Be Clever With Your Cash gives his tips on clearing your post-Christmas debts.
Spent a bit more than you could afford of Christmas? You aren’t alone. Most people this January will be hiding under their covers living off selection box chocolate and reduced brussel sprouts, ignoring their phone (and their bank balance!). But don’t just sit there hoping it’ll all be OK in February, here’s how you can take action to clear your debts.
If you have any money set aside, then the best thing to do is use it to clear your debts. That’s because any interest you’re earning on savings will be far less than the interest you’re paying.
Yes, I know people are always saying you should be saving up (how else are you going to ever get on the property ladder?). But it’s better to have an empty credit card to use in emergencies than a maxed out one where interest is added to your borrowing every month.
But what do you do if you don’t have any spare cash? The longer you borrow money for, the more expensive it’ll be. So try to drum up as much extra money as you can, whether from selling the socks and jumper your Nan gave you this Christmas, through to having a few less nights out. Then put it towards your debts as soon as you can.
If you’ve more than one debt to clear and can’t afford to pay them all off at once, then go for whichever is costing you more each month. This won’t necessarily be the largest one.
You’re likely getting charged around 20% in interest on the money you’ve spent on your credit card. That’s huge. Zero sounds much better doesn’t it? Well, as strange as it might seem, you can get this if you move your borrowing to a 0% Balance Transfer credit card.
This essentially means you pay zero interest on the money for a set period of time, so you’re able to pay off the money without anything getting added. Some banks will charge a small fee to transfer the money and you’ll also need to make the minimum repayment every month – otherwise you’ll not only be charged penalty fees, you might also have the 0% offer removed.
But it’s very important you pay off the card before the 0% period ends – otherwise you might get charged even higher interest. The best way to do this is to divide the total amount of your debt by the number of months you’ve got it at 0%. Then set up a Direct Debit from your bank account to pay this amount on the same day every month. If this amount is too much, at least pay the most you can afford – not just the minimum.
There are 0% cards for people with poor credit scores, but if you can’t get one of those then try for a low-interest balance transfer cards. This will at least reduce the interest you’re paying each month.
Only used the overdraft to pay for Christmas? Well, that’s a debt too – one you might find even more expensive than a credit card!
You’ve a few options. If the overdraft hasn’t been approved by the bank, see if they will agree one – it should cost you less. Better still, you could even switch bank to one with lower overdraft fees, or even one with a small 0% overdraft.
Alternatively you could apply for a 0% money transfer card. It works in the same way as the balance transfer card. Plus it comes with a fee for moving the money.
Everything above should be manageable for most. But if the debts aren’t just from Christmas, and have been building up to the point you can’t cope you need to get help ASAP. Don’t be freaked out. Talk to charities such as StepChange, Citizens Advice or National Debtline to get free, confidential support.