How to get your January finances on track

1st Jan 2015 Managing your Money

Even with the best intentions, it is easy to overspend in December. This year, rather than waking up on New Year’s Day and having to face a financial meltdown, here are some strategies which will help you have a stress-free start to the year.

Know what you owe

When you’ve borrowed a lot on plastic or maxed out your overdraft, it’s tempting to try to forget how much you’ll need to pay back in the future.

In fact, making a list of what you owe, and how much interest you’ll be paying on your outstanding debt, enables you to take back control.

It gives you a clear picture of which debt is the most expensive, and which should therefore be tackled first.

Look at your credit card bill or overdraft statement and see what APR (annual percentage rate) you are being charged. Then try to tackle the debt with the highest APR first.

Borrow efficiently

It may be that you have a lot of expensive debt and that you can’t see a way of clearing it anytime soon. This is where credit cards can be a useful tool in managing cash flow.

You can get some breathing space by shifting existing debt onto a balance transfer card. This approach is most suitable for organised people who know they will use the interest-free period to pay down their debt. What you don’t want to do is have two years of paying nothing back, and find that you have the same amount of debt at the end of it.

You’ll be charged a transfer fee based on the sum you are moving to the new card, but you may have 24 months or more in which to pay off the debt.

Balance transfer fees can vary from 0.6 to 3 per cent of the amount transferred. Before you make the transfer have a look at the different fees and how long you have to repay the debt so that you can work out whether it is worth making the switch.

The typical credit card has a standard APR of around 18 per cent. Store cards can be 30 per cent or more, so it’s easy to see how debt can mount up and how paying off just the minimum amount each month will mean clearing your debt takes a long time.

There will be a delay between applying and getting a new credit card, you need to build this into your timetable.

Some cards offer very long interest-free periods. For example, the Sainsbury’s Bank credit card (which is available to Nectar cardholders), offers 33 months at 0 per cent interest and then an APR of 18.9 per cent after that. The transfer fee is 0.64 per cent on transferred balances. Barclaycard Platinum and the Tesco Clubcard Credit card have similar deals.

Get the best deal on big expenses

Utility bills, home and car insurance, and mobile and broadband contracts are some of the highest ongoing household costs.

If you shop around for the best deal when your contract comes up for renewal then you can make significant savings over the next 12 months, potentially worth hundreds of thousands of pounds. Have a look at sites like Switch with Which? or MoneySupermarket.

There are often hidden terms and conditions in existing contracts, so before you move suppliers check:

Whether you are committed to a fixed term with your current supplier
Whether your current supplier will charge you an exit fee or penalty
Whether you have the option to save money via a “dual fuel” tariff?
Whether there are savings available by signing up to monthly direct debit instalments rather than paper bills?

Declutter and sell

You may have unwanted Christmas presents, unused clothes, magazine subscriptions, gym membership, or other services that you no longer use or want. Cancel the services you don’t need anymore and try to sell the items which are cluttering up your home.

Check existing direct debits which you might have forgotten about. Do you have a mobile phone contract still current for a phone you’ve replaced?

Are you wasting money on extended warranties for goods that you’ve sold or given away, or which are already covered for 12 months under the manufacturer’s own warranty?

Start thinking about savings

It’s a good idea to think about building up an emergency fund equivalent to three months’ worth of household expenses, in case you are sick or unemployed.

You can start the savings habit by signing up to a regular savings account, into which you make payments every month, or an instant access account, in which case an online account will probably pay the most interest.

Bear in mind that interest rates are very low at present, so you will save more money by paying off your debts as a priority.

If you never seem to have any money left at the end of the month then consider leaving your credit and debit cards at home and using drawing a set amount of cash out at the start of the week. Another useful idea is to keep a spending diary. This way, you'll know exactly how much you are spending on all the incidental expenses that crop up every day.

Know when to seek help

You should never pay for debt advice. Free counselling is available from services like National Debtline, the charity StepChange or your local Citizens Advice Bureau.