Switch cards to clear Xmas debt
CHRISTMAS can saddle even frugal families with unwanted debt.
Yesterday the Mail reported that nine million people will start the New Year owing between £2,000 and £10,000. A further five million owe more than £10,000. A third of people say they have to borrow money to pay for Christmas, according to debt charity StepChange, and those that do take an average of seven-and-ahalf months to pay it off.
The saving grace is the range of loans and credit cards that can help pay off debt cheaply. But the choice can be confusing, so we asked research group Moneyfacts to sift through the data to find the best deals to suit your needs.
Festive spending can leave many languishing in their overdraft. This could be particularly costly in light of new rules that mean customers could face ‘payday lender- style’ charges of 40 pc — even if they have arranged to go into the red.
An effective way of managing your overdraft is to get a money transfer card. The card supplier pays off your overdraft and the debt is shifted onto the card.
This is particularly beneficial if you can get a card with a lengthy introductory deal, which sees lenders tempt customers by offering 0 pc interest for a limited period. The average term for these deals, as of November 2019, was 311 days, up from just 128 in 2010.
The longest period available is 28 months with Tesco Bank’s Clubcard Money Transfer Mastercard. It charges an initial fee of 3.94 pc on the amount of debt transferred. But customers pay an annual interest rate (APR) of 19.9 pc after the introductory term ends.
If you think you can pay off the debt in less than 28 months and want to pay a smaller transfer fee, the Capital One Balance Transfer Mastercard charges a 2.9 pc fee and has an introductory term of 12 months, after which you pay 24.9 pc APR. The MBNA Limited
Long 0 pc Money Transfer Mastercard charges a 2.99 pc transfer fee and has an introductory term of 24 months, after which you pay a 22.9 pc APR.
Those with larger debts can use a balance transfer card to shift their credit card debt to an interest-free deal. The longest introductory term on offer is 29 months, from MBNA, Sainsbury’s, Halifax and Virgin Money.
Of these cards, MBNA has the lowest transfer fee at 2.75 pc. It charges 20.9 pc APR after the introductory term. MBNA also offers a card with a 26-month introductory period but a transfer fee of just 1 pc.
For those who may have built up small amounts of debt over Christmas, it’s best to pay it off as quickly as possible.
Moneyfacts finance expert Rachel Springall says unsecured personal loans could also be an option, particularly if you have ‘multiple cards or are in the red’.
The lowest rate personal loan at £2,000 over two years is with Metro Bank at 7.9 pc.