Financing Christmas 2008 - don't make the same mistakes!

If your finances are in a mess after the annual Christmas binge, don't despair. There are 346 days to next Christmas - remember, 2008 is a leap year - so you have plenty of time to prepare for next year, and ensure that you don't make the same mistakes again.

First of all, get your financial house in order with regard to 2007. If you are left with a raft of debt on credit cards and other borrowings, make a list of what you owe - to finance companies and friends and family - so that you can work out the best way to deal with it. This will involve calculating how much you need to live on out of your earnings each month - mortgage, food bills, council tax, running the car, etc - and then setting aside as much as you can to pay down your debts.

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If you have credit card debt that you are unable to pay off straight away, consider switching it to a new card, with a better rate of interest. You should almost certainly do this if you have debt on store cards, which tends to be the most expensive.

If you are likely to be carrying the debt for any period of time, the best option is likely to be to switch your balance to a card with 0% interest on balance transfers. You need to factor in the fee you will have to pay, which can be as high as 3% of the balance.

Among the best 0% balance transfer deals on the market at present is the Virgin Money MasterCard. This offers an interest-free period of 15 months from the date of issue, with a fee of 2.98% of the balance transferred, minimum £3.

Other cards to consider are the Egg Visa card, with an interest-free period that runs to the beginning of April 2009 and a 3% fee. Mint's interest-free period lasts until the beginning of March 2009 and carries a fee of 2.9%, minimum £5.

Barclaycard Platinum MasterCard and Visa card both give 14 months interest-free from the date of card issue, with a fee of 2.5%, minimum £6.25.

NatWest and Royal Bank of Scotland both offer 0% on balance transfers for 13 months from the date of card issue, with a fee of: 2.90%, minimum £5.00. Abbey offers a similar period with a 2.5% fee, minimum £3.

0% Balance Transfer Cards

But remember, once the debt is switched to your new credit card, do not spend on that card, but start making serious inroads into repaying the capital owed. The reason is that most credit card companies deduct lower-cost debt from your outstanding balance first, leaving the higher-cost debt in place. So, if you continue to spend on the card, the debt will continue to mount. Use the 0% time to pay as much off as you can, not just the monthly minimum.

If you must continue to spend on a credit card - they are useful for online purchases, because of the additional consumer protection they give over a debit card - you need to use a second card. Once again, make sure you pay off the balance in full each month, or the exercise of trying to get yourself into shape for next year starts to become pointless.

If you really have problems with reorganising your debt, it could be sensible to shift it off your cards right away and convert what you owe into a formal loan. Credit card debt is notoriously expensive: it's the price you pay for flexibility. If you find your credit card debt mounting, you can freeze it by converting it to an unsecured personal loan.

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A word of warning, however, you must then meet your monthly payments of both interest and capital, or you will start to do serious damage to your credit record, and possibly end up with a court judgment against you if you default.

Even if you schedule the loan over three or five years, to bring the monthly payments down to a manageable level, you could end up paying more interest than with a credit card if there is any chance that you could pay your card debt more quickly.

Many loan companies make you pay an early repayment charge if you pay off the debt early, so make sure you are not locked in if you think there is any chance that you might want to do this. You should also be wary of expensive loan insurance that may be bundled in with a personal loan. Often it is not needed - or will be of no use to you if you don't meet very strict criteria. If you do want loan insurance, you will very probably be able to buy it more cheaply elsewhere than from the loan provider.

In reality the only way to get your financial house in order is to stop spending and, when you have finally cleared those debts, start saving. If you are in the fortunate position that you can put some money aside each month, then a regular saver account is probably the best option, as they tend to pay higher rates.

There are some excellent "Christmas savings" accounts on the market. These arose out of the Farepak disaster in 2006, when thousands of people who had saved in an unregulated coupon-based scheme lost their money after the company ran into financial difficulties.