While some households save up for Christmas, others borrow to meet the costs.
According to Moneyfacts, credit card interest rates averaged 35.3% APR in December, making it harder to pay off debt.
Meanwhile many overdrafts charge interest of 39.9% APR, and other types of short term loans far more.
Here, we reveal 5 dos and 4 don’ts to help you manage and reduce your festive debts.
DO prioritise your debt
Jot down all the credit card, store cards, loan, overdraft and buy now, pay later (BNPL) debt you have, how much you owe on each, as well as how much interest you're paying.
This will help you understand where your debt stands and decide which to pay off first.
For example, if you have two credit cards - one with six months of interest-free borrowing left, and another card already charging you interest, it’s worth trying to clear the card charging you interest first.
Find out moreDO use savings to pay off high-interest debt
While it’s good to have a financial cushion for emergencies, there’s little logic in having savings if you also owe money on an expensive credit card or overdraft.
If you've got overdraft debt, it's worth using your savings to pay it off first.
We suggest using savings for overdraft debt before credit card debt, because 0% balance transfer deals (where you shift credit card debt from one card to another) typically offer longer interest-free periods and some come with no transfer fees.
Find out more:DO use a 0% balance transfer credit card
Using a 0% balance transfer credit card card can help reduce your credit card debt faster, as all your payments will go towards the debt rather than the debt and interest.
The best deals offer up to 30 months interest-free, but balance transfer fees apply in some cases, with fees ranging from nothing to 3.45%. This means transferring a balance of £2,000 would cost you £70 in balance transfer fees.
Keep in mind that the longest 0% offers typically go to those with the best credit scores, so you may not qualify for the full 30 months.
It it possible to get fee-free balance transfer credit cards, but the best deals currently only offer up to 12 months interest free, so you'll need to be confident you can pay off your debt in that time.
Find out more:DON'T rely on overdrafts going forward
While overdrafts can be useful for short-term cash flow gaps, relying on them for ongoing borrowing can be expensive. Many banks charge high-interest rates or fees, especially if you go over your overdraft limit.
Meanwhile fellow WRP First Direct offers an interest-free overdraft of £250 on standard current accounts, however, if you borrow more than £250, you'll pay 39.9% EAR.
Find out moreDON'T just make the minimum repayment
A simple change you can make is to opt for a fixed payment rather than just the minimum payment.
The minimum payment on a debt is usually charged as a percentage of your remaining debt which means it reduces as your debt goes down.
For example, a minimum repayment of at least 2% on a debt of £500 is £10, but once your debt gets to £400 your minimum repayment falls to £8.
It’s not always a bad thing to pay the minimum, especially if you’re struggling for cash in a particular month. However, if you make it a habit you’ll struggle to escape the debt trap.
By committing to a fixed monthly repayment, you’ll ensure that you’re paying off more of the debt each month, clearing it faster and saving money in the long run.
Find out more:DON'T take out pay day loans
Payday loans are designed to offer short-term loans to tide you over until you receive your monthly salary. They are never suitable for medium or long-term borrowing.
With APRs as high as 1,250%, they’re expensive compared to personal loans, which averaged 8.85% in October according to Bank of England data.
Instead, explore alternatives such as credit unions, which offer lower interest rates on personal loans and charge interest only on the reducing balance. This means if you can repay it weekly, you'll pay less overall. They also do not occur setup fees, administration costs or early redemption fees.
Find out moreDO cut back where you can
Review your spending and consider using a budgeting app to get a clearer picture of where your money is going.
Several apps offer free features to help you track your expenses, manage your budget, and identify areas where you can cut back.
Whether it’s reducing dining out, cancelling unused subscriptions, or switching to a more affordable mobile network or broadband deal, even small changes can make a difference in freeing up money to pay down your debt.
Find out moreDON'T ignore free debt advice
If your total debts (excluding a mortgage) add up to more than you earn in a year, you don’t quite know where or why you have these debts, or you’re struggling to repay them, you may well have problem debt.
There are several free, impartial organisations and charities offering debt advice, whether face-to-face, over the phone, or online.
If you’re struggling with repayments, getting free independent advice is far better than using fee-charging debt management companies.
Find out moreDO ask your lender for help
If you are struggling with repayments it's also worth contacting your provider to see if they can offer any help.
In 2018, the Financial Conduct Authority (FCA) introduced new rules to help the estimated three million people in persistent credit card debt—those who have spent more on interest and fees than they have repaid on the outstanding debt.
Banks are now obliged to send letters to customers who have been in persistent debt for 18 months, warning them about the cycle they're in.
Credit card providers must offer customers a method of repaying their balance over a reasonable period. This could be by reducing or waiving interest rates or charges.
Just bear in mind that lenders also have the ability to suspend your card to stop you from borrowing.
Find out moresource https://www.which.co.uk/news/article/paying-off-festive-debts-the-dos-and-donts-auK0Z7k3Gxut