In the festive frenzy of Christmas or the excitement of booking your summer getaway, it’s easy to get carried away with your spending. That’s all well and good while you’re enjoying yourself, but it can leave you with a financial hangover you’ll regret.
If you’re nursing a financial hangover, here are some ideas you can use to remedy it and avoid it ever happening again.
Get a handle on your debts
If you’ve used credit cards to fund your overspending, it’s sometimes easy to slip into the habit of just making the minimum payments every month, and not actually make a dent in the debt.
This means the debt will continue to hang over your head when you could be paying down the balance if it was on a more competitive card.
For example, if you borrowed £2,000 on a card with the current average representative APR of 17.32% and only paid the minimum each month (around 2% of the balance or £5 – whichever is highest), it would take you approximately 23 years and 11 months to clear the balance!
Over that period, the £2,000 would accumulate £2,499 in interest – more than double your original spend. And that’s assuming the interest rate stays the same. Also it doesn’t take into account any additional fees.
So, clearly it’s important to pay more than the minimum each month. If you are struggling to pay down the debt on one or more cards, it may be worth looking for a 0% balance transfer card so that your payments can actually start chipping away at the balance, make sure you compare credit cards before you decide for certain to apply for a particular card.
The best balance transfer deals go to customers with the best credit ratings. For example, the Barclaycard Platinum with extended balance transfer card currently offers a huge 22-month interest free period.
The catch is, you’ll need to be earning £20,000 a year or more and have an excellent credit rating. But even if you don’t have the best credit rating, you still have options.
The Capital One Balance card, for example, offers 0% on balance transfers until November 2012 and is available to customers with ‘average to good’ credit ratings.
If you do choose to transfer the balance of one or more cards onto a single 0% balance transfer card, you need to take extra care to clear the balance before the interest-free period ends, because the rate will shoot up and your balance will start accruing interest again.
For example, after November, the rate of the Capital One Balance card rockets to a representative APR 34.94%.
Prioritise your debts
You should deal with your highest interest debts first as they’re the ones that will cost you the most as time goes on. This might mean transferring the balance from your highest interest credit card to a 0% card first and clearing that.
Remember, however, your biggest debt isn’t necessarily your biggest priority, because falling behind on payments like mortgage or rent can result in you losing your home.
Consolidating credit card debt onto one card will at least help you manage your credit debts more easily so you can better organise your outgoings.
Once you’ve transferred the balance, work out how much you need to pay off each month before the interest-free period ends and set up a direct debit for that amount each month.
That way you won’t miss a payment and you’ll know that by the end of the interest-free period, your debt will be paid. Don’t use the card for anything else as that will just add to your burden.