Ask Our Expert

Paying off Christmas debt

Dear Chris, every year I end up spending way too much on my credit card at Christmas and the financial hangover just seems to linger.

Now, in December, I still have around £1,000 of debt on my credit card from last year, and this will probably double or even triple once I have bought this year’s presents etc.

In 2010 I want to clear my debts completely by summer and give myself a clean slate, what advice can you give me?

Martin, via email on 15 December 2009

Our money expert says...

It’s great that you want to clear your debts next year and, hopefully, I can help you reduce the size and cost of your debt, and reduce the amount of time you’ll be in debt.

Reduce the size of your debt

Planning how you will deal with your Christmas debt is a good idea, but if there is a chance you could reduce the amount of debt you get into in the first place, that would be preferable.

Christmas is an expensive time, but carefully planning your budget (and sticking to it) can help you avoid excessive spending. Plus, remember that a thoughtful inexpensive gift can mean more than a pricey one.

News: Don’t go credit card crazy this Christmas

Reduce the cost of your debt

If you have to put your Christmas spending on a credit card, then you should try to get a good 0% purchases credit card - the longer the 0% period the better. This will give you additional time to pay off your debts without paying interest.

Compare 0% purchases credit cards

However, as it may be too late for you to get one of these in time for this Christmas, and you already have existing debt on your credit card (that I assume you are paying interest on), you should look at getting a 0% balance transfer credit card.

You can transfer balances from other credit cards onto a 0% balance transfer credit card (you will usually have to pay a fee of around 3% of the balance) and then you won’t have to pay interest on the debt for the duration of the 0% period.

This means your debt won’t be getting any more expensive and you can focus on paying it off as fast as possible.

You say you want to clear your debt by summer so you may only need a 6-month 0% balance transfer period, but if you think there’s a chance it might take longer, the longest period you can get at the moment is 16 months with the Virgin Money credit card (www.virginmoney.co.uk).

Compare 0% balance transfer credit cards

Reduce the amount of time you’ll be in debt

Once you have transferred your debt, so it is no longer incurring interest, you need to make a concerted effort to pay it off as soon as you are able.

It’s essential that you don’t just make the minimum repayments and instead try to pay off as much as you can each month.

Some people find it useful to keep a spending diary or make a spreadsheet, so they know exactly where their money is going. You could also think about whether there are any luxuries you buy that you could live without for six months.

You say you want to clear your debt by summer, so work out how much you’ll have to pay off each month to achieve this and try to hit these monthly targets.

Trying to pay off debt can be stressful, and if you are struggling, don’t be afraid to seek help. The following organisations can offer you free, independent debt advice:

The Citizens Advice Bureau (www.citizensadvice.org.uk) offers confidential advice by phone and face-to-face. Visit the website to find your local CAB
The National Debtline (www.nationaldebtline.co.uk) provides information and resources for coping with debt on their website as well as a helpline on 0808 808 4000
The Consumer Credit Counselling Service (www.cccs.co.uk) offers advice, support and counselling for anyone who is worried about debt. You can call the helpline free on 0800 138 1111.