It’s January and we’re all feeling the pinch. Our jeans are tighter, our pockets are lighter and we’re desperately trying to stick to our New Year’s resolutions. If you’ve built up any debt over the Christmas period, now could be a great time to tackle it. Here’s how to take control of your finances and get yourself back on track.
If you’ve covered Christmas by borrowing on an interest-free overdraft or credit card, first check how long the free period is for. Work out if you can afford to pay it off before the promotion ends, or overdraft charges begin, then calculate how much you can afford to pay back each month. Try setting that money aside from your wages when you get paid, or set up a monthly direct debit. That way you won’t be tempted to spend if the money isn’t available to you.
Borrowing with interest
If you’ve got debt on one credit card, it’s worth checking out 0% balance transfer cards. They offer the chance to switch debt built up on another card. Some come with a fee so bear that in mind when you’re choosing a card.
If you’re paying interest on multiple cards or loans, it’s worth looking at consolidating your debts. This is where you combine the debt you owe into one more manageable personal loan, or by borrowing against an asset, such as your home.
The benefits of debt consolidation
Merging your borrowing together can help you:
- Simplify your payments - you’ll make one set monthly payment on the same date each month
- Understand your debt better - having all your debt in one place can make it easier to see how much you owe, how quickly you’re paying it off, and how much interest you’re being charged
- Potentially reduce the interest you pay - you may be able to reduce the amount of interest you’re paying by consolidating your debt under one lower interest loan
But it’s not suitable for everyone. Before you apply for a personal loan, you should consider:
- The total cost of the loan. If you’re taking it out for a longer period of time, you could end up paying more interest even if the rate is lower
- Early repayment penalties. If you want to clear your loan debt early, you may have to pay extra charges
- Set-up fee. You typically have to pay a percentage of the amount you’re borrowing to set up the loan
- Impact on your credit score. It may go down after applying for a loan and closing old accounts.
Where do I start?
It’s best to compare personal loans first – if you do this with Experian you can see which you’re eligible for before you apply. Selected lenders will also show you what interest rate you’re likely to get. It’s free and won’t affect your score.
If you’re struggling to manage your debts and aren’t sure where to begin, non-profit organisations such as StepChange and National Debt Line can offer you free support. They can advise you on ways to deal with debt, such as a debt management plan or an Individual Voluntary Arrangement, both of which will probably have a negative impact on your report and score.