Make this the year you finally clear your credit card debt

Harvey Jones

If you have a New Year's debt hangover take action now or you could still be paying off it off next Christmas. Here's how…

Interest-free

Your easiest option is to shift the debt to a balance transfer credit card that charges zero interest for an introductory period, which can extend to three years or more.

You can find the best deals on a comparison site but do not simply go for the longest, try to pay your debt off sooner.

Before signing up, check the balance transfer fee. These range from 1.40 to 3.50 per cent of the balance, so the most expensive cards would charge £3.50 for every £1,000 you transfer.

However, the savings make this worthwhile. If you shift £3,500 from a card charging 19.9 per cent to one charging 0 per cent for 38 months, and repay £95 each month, you will save a whopping £1,391 in interest, according to Barclaycard.

 

Watch your footprint

Not everyone will get that headline rate, those with credit problems may be offered a shorter introductory period or be rejected altogether. Being turned down could inflict further damage on your credit rating, which may affect the rates you get offered in the future.

You can get around this by using an eligibility checking tool, sometimes called a “smart search” or “soft search” facility, offered by many card issuers and price comparison websites. This will show which cards are available to you before applying.

 

Pay it down

If you do qualify for a balance transfer card pay down your debt rather than letting it run, because when the introductory period expires you will instantly pay an APR of 19.9 per cent or more.

You may be able to transfer to a new 0 per cent card but there are no guarantees, particularly if you have credit problems.

Also, make sure you do not miss any monthly payments, as your zero interest offer will instantly be cancelled. Consider setting up a monthly direct debit to avoid missing it by mistake.

Remember, you will pay interest on any new spending, so resist going on a spree (or take out a card charging zero interest on purchases).

 

Consolidate

If you cannot get a balance transfer card, things get trickier. You could try consolidating your debts at a lower interest rate onto a personal loan, if you can get one, but homeowners should beware secured loans, as your property is at risk if you cannot pay off the debt.

Debt consolidation loans are another option but these often have high fees and interest rates, and are best avoided.

 

Start saving

Either way, you need to draw up a budget, cut back on your spending, and prioritise paying down your borrowings. Prioritise your most expensive debt, then move on to the next most expensive, and so on.

If you cannot pay off your debt contact your card company, either directly or via Citizens Advice or StepChange Debt Charity.

Your issuer may agree to suspend interest charges to help you make faster inroads into your balance. You will probably have to cut up your card but that might be a good idea anyway.

Once the debt is cleared, start building up your savings. That way you can celebrate next Christmas without dipping into the red.