Surviving the New Year debt nightmare
Ever wonder what that whooshing sound was in the run-up to Christmas?
No it wasn't the sound of a Santa's sleigh coming to keep you company over the festive season, but the several hundred plastic card transactions taking place per second throughout December.
There were 263 per second in 2007 and, as 57% of consumers said they intended to spend the same this Christmas as they did the year before, according to advice charity Credit Action, we can assume it's somewhere around the same figure.
Point is, this year you probably spent as much as you did in previous years and are now waking up to a comparably horrifying New Year debt nightmare. As 19% of people said they would spend more over Christmas 2008, Credit Action points out, it may even be worse.
This year, the charity estimates that consumers spent on average £655 (food and drink £170; Gifts £359; socialising £126) per person compared with £706 in 2007. This increases to £856 per person if you include cards and postage of £53, Christmas tree and decorations of £64 and travel of £84.
Not only that, but the ghost of Christmas past continues to knock on some doors as one tenth of people still have not paid off their credit card bills from last Christmas, according to Moneyexpert.com. Credit Action believes this rises to 34% for people on lower incomes.
Almost two thirds of people expected to clear their Christmas expenditure by the end of January last year, according to research from Sainsbury's Finance, but the reality for others this year is the borrowing behind their Christmas cheer will continue to be a depressing worry far into 2009.
Be proactive
Research from the city watchdog, the Financial Services Authority (FSA), shows only 13% of us will try to sort out our finances throughout January, while 48% are more likely to go on a diet or book a holiday.
Rule No.1: be proactive and try to get on top of your debt sooner rather than later. The later it is put off, the more it will cost.
Use a 0% credit card
Many of us needlessly pay interest on large credit card balances when we don't have to: the proportion of credit card balances bearing interest was 73.2% in September 2008, according to the British Bankers Association.
Total credit card debt in October was £53.1bn. The UK collective credit limit on credit cards is £158bn, which is an average credit card limit of £5,129 per person. The average interest rate on credit card lending is currently 17.9%, which was not only 15.9% above base rate at time of print (2%), but is really too high a rate to be paying on substantial borrowing.
The answer: use a 0% purchases or balance transfer credit card. But be careful as some card providers have both these functions on the same card: purchasing items on a balance transfer card means the purchases will only be paid off after the transferred balance has been cleared and they will attract interest until then.
Even though it may seem like you are saving money by using the 0% purchases function on a balance transfer card, it is a trick banks use to earn interest and could eventually leave you out of pocket.
Nationwide is the only provider in the industry that allows customers to pay off the most expensive debt first. If your card is with a different provider, think twice before combining balance transfers with purchases.