5 steps to clearing your Christmas debts

Christmas credit and store card card bills are landing. While the ability to spread the festive costs is one of the main benefits of credit cards, your aim should be to pay off your debts as quickly as possible. However, one in 10 people still expect to be paying for Christmas 2011 when Christmas 2012 arrives. And if you’re not careful it could take years to pay your credit card off. That’s why we have come up with a five-step plan to Christmas debt freedom.

By Clare Francis

Don’t bury your head in the sand

If money is already so tight that you do not know where you will find the cash to clear your Christmas debts, it can be tempting to simply ignore them in the hope them will go away.

Banks and credit card companies are not in the habit of forgetting when people owe them money, though.

And burying your head in the sand is the worst possible thing you can do, as missing payments will result in penalty charges that will only add to your woes. It is therefore crucial to pay at least the minimum, and preferably more, every month.

Every week, Clare Francis, financial journalist and editor of comparison site moneysupermarket.com will offer tips and advice on all things money-related to help iVillagers make the most of their hard-earned cash. From energy bills to car insurance; credit cards to children’s savings accounts; mortgages to discount vouchers Clare will show you how to make sure you’re getting the best deal.
Concentrate on the most expensive debts first

Paying more off your most expensive debts first will mean that less of your monthly repayments cover interest costs and more goes towards paying down the outstanding balance.

This will cost you less in the long run, allowing you to escape the Christmas debt trap more quickly.

If you have debts on a number of credit or store cards, it is therefore sensible to look at which of them charges the most interest and concentrate on clearing that balance first.

Remember though, that you must pay at least the minimum amount towards all your card debts every month to avoid charges.
Consider switching to a 0% deal

If you have a good credit score, then a great way to clear your debts more quickly is to transfer your balance, or balances, on to a card offering 0% for an introductory period.

The Barclaycard Platinum with Longest Balance Transfer card, for example, offers an incredible 24 months at 0%.

However, the deal comes with a balance transfer fee of 3.2%, meaning that anyone with £5,000 to transfer would pay £160 upfront. If you’ll need two years to clear your debts then the fee is worth paying although you’ll need to hurry to take advantage of it as it is being withdrawn from sale at the end of January.

If you think that you can pay your debts off within 13 months, a better bet may therefore be the NatWest Platinum Special Offer card, which has a balance transfer fee of just 1% (or £50 on a £5,000 debt).

It’s important to clear your balance before the 0% offer ends as you’ll the interest rate shoots up. Both cards charge a representative APR of 17.9% (variable).

There are loads more 0% credit cards, click here to see what else is available.
Increase your payments

Making just the minimum payment each month will have very little effect on your balance once interest charges have been taken into account.

So while it is essential to pay at least the minimum amount off all your credit card balances each month, you should be aiming to pay off as much as possible every month.

If you find it hard to discipline yourself to do this, then a low-rate personal loan may be a good alternative to a 0% card - especially if you owe a significant amount.

Marks & Spencer Money, for example, recently slashed the representative APR on a personal loan of £10,000 over five years to just 6.0%. Click here for more leading loan deals.
Stop spending

It may seem obvious, but it is important to avoid racking up any more debt while you're still clearing existing borrowings.

Even if the sales are calling you, reining in your spending until you have at least paid off the cost of Christmas will minimise the risk of you being sucked into a spiral of never-ending debt.

Every week, Clare Francis, financial journalist and editor of comparison site moneysupermarket.com will offer tips and advice on all things money-related to help iVillagers make the most of their hard-earned cash. From energy bills to car insurance; credit cards to children’s savings accounts; mortgages to discount vouchers Clare will show you how to make sure you’re getting the best deal.
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