Christmas may be over, but many of us will still be paying for it for months to come. More than a third of us put our festive spending on a credit card, according to the Money Advice Trust. Whether it’s buying presents or splashing out on a holiday, as a nation we love borrowing money in order to spend.
The average household had £7,549 of credit-card debt in December, according to official figures.
Now we realise that most MoneyWeek readers are too sensible to get themselves into this sort of state – you know how to budget and you know that going into the red for the sake of a Merry Christmas is not worth the hangover it leaves for the New Year. However, if you (or loved ones) find yourself with a hefty chunk of credit-card debt (Christmas-related or otherwise), now is a good time to sort it out before it gets any bigger.
First, you want to prevent any interest charges from bloating your debt further. There are many cheap credit options available at the moment (which goes some way towards explaining how we’ve all built up so much debt in the first place), which means you should easily be able to eliminate interest payments from
what you owe. Take a look at the balance-transfer credit cards that offer interest-free deals for months, or even years. With these you typically pay a small fee in order to move your debt onto the card and then enjoy an extensive interest-free period, giving you ample time to pay off, or at least put a big dent in the debt.
The longest 0% deal on balance transfers at the moment is 39 months on Santander’s All in One card. But the £3 monthly fee means you should avoid it. Instead, if you need that length of time to clear your debt, go for Barclaycard’s Platinum 38-month balance transfer. The card has no monthly fee, but there is a 1.4% balance-transfer fee. If you don’t need that long to clear your debt go for Halifax’s balance-transfer card instead. It is interest-free for 29 months and there is no fee.
Ditch your overdraft as well
You can also use a credit card to stop paying interest on any overdraft you have built up, by using a money-transfer credit card. These will transfer money from your credit card into your bank account – so you are shifting the debt from your overdraft to the card – in return for a transfer fee. You then get a long interest-free period. Virgin Money offers 0% on money transfers for 25 months with a 2.7% fee. Again, if you don’t need that long to clear your debt go for a shorter interest-free period with a lower fee: Virgin Money offers another card with a 12-month interest-free period on money transfers, but a lower 2% transfer fee.
Finally, you could look around for a bank offering a current account with an interest-free overdraft that you could switch to if you are currently paying interest – or worse still daily charges – on your overdraft. Nationwide’s FlexDirect account has an interest-free overdraft for the first 12 months, or First Direct customers get a £250 interest-free overdraft with no time limit. If you move to First Direct just now, you’ll also get a £100 switching bonus.
Once you are interest-free, you can then work out how to clear your debt before the interest-free period ends. The simplest thing to do is to take what you owe and divide it by the number of months on your interest-free card, then pay off that amount each month. Set up a direct debit and you’ll soon be debt-free. And if you can’t clear your debt during your interest-free period, make sure to note the date when the deal ends, then switch again to another interest-free deal until you have cleared the debt.
Pocket money… pounce quickly on new year deals
• Anyone buying a new-build house in England is no longer obliged to enter leasehold agreements, and anyone buying a property with a lease of more than 21 years does not have to pay ground rent, says Brian Milligan on BBC.co.uk. The ban – announced by the government at the end of last year – follows a steep rise in complaints from individuals who felt exploited by what Communities Secretary Sajid Javid described as “feudal practices”.
In extreme cases, ground rents were doubled every ten years; in others, homeowners discovered the freehold of their property had been sold to investment firms who were charging huge sums to sell it to the homeowner. Campaigners have warned that the move will lead to a “two-tier market”, with the existing 1.4 million leaseholders left struggling to sell. However, the government is working with the Law Commission to find ways to make it easier to buy a freehold or extend a lease, notes Jim Pickard in the Financial Times.
• “Hundreds of thousands of taxpayers hoping to defer the pain of their annual tax bill” by using credit cards will no longer be able to do so because of an HMRC ban that comes into force on 13 January, says Vanessa Houlder in the FT. The ban, which takes effect shortly before the 31 January deadline for filing tax returns, comes in response to new rules that mean HMRC can no longer pass on bank charges for processing credit-card payments. Those struggling to pay their bill will have to find a personal loan or use money transfer credit cards to borrow money they can then transfer to their bank account (see above).
• Savers scouring the market for better returns in the new year will have to be quick to pounce on the best deals – some providers are pulling their top-paying accounts just days after launching them, warns Sylvia Morris in the Daily Mail. Birmingham Midshires Internet Saver, paying 1.45%, launched at the beginning of the month but was “gone within a week”; an offering from Charter Savings Bank was even more short lived. Post Office Online Saver Issue 28, at 1.3%, is currently a top payer, but the rate drops to 0.25% after 12 months.