Reining in post-xmas credit

JANUARY can seem like a long month when salaries were paid early in December and after a big festive splurge on the credit card. At the start of each New Year, the Citizens Advice Bureau is inundated with calls from people looking for advice on how to deal with hefty credit card debt. But there are a number of steps you can take to lighten the debt load.

Keep up with your minimum repayments

Always clear your minimum repayments. Failure to do so will result in late a payment penalty, typically £12 each time. Late payment will also affect your credit history, which could mean youre turned down for a cheap deal in future borrowing.

And don't fall into the trap of keeping to the minimum repayments. Even paying a little extra each month could see your interest bill slashed and term cut. Some card companies have reduced the minimum repayment to 2.5% of the balance, which - though it may appear that way - is not doing you a favour. It just means you pay interest on interest as the debt escalates. With an interest rate of 15% it will take you 15 years to pay off a debt of £1,137 with interest amounting to £855, according to Moneyfacts.

Storecards in particular carry exorbitantly high rates, which can take a long time to pay off if you are only making the minimum payment. The typical APR on a store card is 26%; about10% higher than the average credit card rate.

How flexible and how friendly is that piece of plastic in your wallet or purse? Find out with Moneyextra's credit card comparison service.

Switch to a 0% deal

According to research by Abbey, more than three million of us will shift around nearly £9billion excess pounds to new credit cards in January. If you are shopping around for a better credit card deal, you have two options: either move to a 0% card deal or switch to a low life-of-balance card. However, you will need to transfer to a new card provider to take advantage of these deals. Low rate lifetime or long term deals may be worth exploring. These rates are lower than those found in the personal loan market and are either fixed for a given number of years or until the balance is repaid in full. Interest-free card deals tend to be limited offers for 12 months. There is normally a fee involved typically 2.5% of the amount transferred, so transferring a £1,100 debt will cost £27.50.

If you only have a small balance and can repay it within a tight timeframe, then this fee might outweigh any interest you would pay at the standard rate. And remember to act sooner rather than later. It will take a few weeks for a new card to be set up and the balance transferred and you could end up paying interest during the transfer period.

Are you looking for 0% balance transfer cards?

11 January 2008 © Moneyextra.com

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