Teresa Hunter: How past presents can help insure your future financial health in 2010

Published on Saturday 2 January 2010 23:44

THE party's over, and the cold light of January is now dawning. Hogmanay's thick head should have cleared, only to make way for another major headache; the financial hangover, which casts an even gloomier shadow over the new year.

Christmas excess can fuel a third of the personal insolvencies that arise in the first three months of a new year, according to accountants Grant Thornton, as credit-card bills hit the doormat, along with the biggest home heating demands of the year. But seize the initiative and it is possible to beat the January financial blues. Here are 15 ways to keep afloat during 2010.

1 Don't bury your head in the sand

It's easy to be panicked by the scale of the bills that can arrive in January. But it is much better to face up to the problem. That way you have a fighting chance of getting to grips with things.

Take some time to sit down and calculate calmly which bills will have to be paid in January and February. Be honest and don't underestimate either your Christmas spend or the likely size of your utility bills. Take a look at your bank account and money coming in. If there is a shortfall, you need to draw up a plan for how the debts can be repaid.

2 Raise cash by returning unwanted presents

Shoppers waste 1.7 billion on unwanted Christmas presents, according to research by Moneysupermarket, with individuals receiving useless gifts worth 72 on average. Novelty pants top the list of unwelcome pressies, followed by the latest X-Factor single, musical ties, doormats and coasters.

Make a start denting your debts by trying to get refunds if you know where your gift was bought. Retailers are not obliged by law to offer cash back or to exchange items just because they are unwanted. Rights to a refund or exchange only apply if goods are damaged or not described or fit for purpose. But in practice most big stores have fairly flexible return policies, particularly at this time of year.

If you want your money back – as opposed to an exchange, or a credit note – then you will need the receipt. Some stores, such as M&S, now offer "gift receipts" which can be included in presents – without revealing the price.

A receipt also ensures that you get the full value of the goods. Without a receipt any refund could be for its current value and, given most sales now start before Christmas, this could be significantly less than the purchase price. If relatives bought the item with a debit or credit card, stores may insist on putting the cash refund back on their card, in which case you will need to ask them to forward the money to you.

If you don't have a receipt, or don't want to ask whoever bought it for you to return it, you can swap presents for other goods or ask for a credit note.

If you receive electrical goods or gadgets that you think you may want to exchange don't take them out of the box or you may not be able to get a refund, even if it has never been used. John Lewis, for example, will reduce the refund price of electrical goods where the packaging has been removed, even if you've managed to fit it all nicely back in the box again.

It is also important to apply for refunds promptly. Most stores will only exchange goods for 28 days after purchase. Marks & Spencer, which has always had one of the most generous "no quibble" return policies on the high street, but will only exchange goods for up to 35 days.

3 Sell presents online

If you can't exchange an unwanted present, you should be able to sell it online to raise cash for paying down debts.

One website, Gumtree.com said it had seen more than 600 unwanted items listed for sale on the site in three days, with items ranging from iPods and Nintendo DS systems through to perfume, gift vouchers and hair straighteners.

Some people are also posting their unwanted Christmas presents in the Swap Shop section of the site; current ads looking for a swap include Strictly Come Dancing tickets, computer games and mobile phones.

The biggest auction site, eBay, has even come up with a new term "rehoming" for ditching unwanted gifts. But other sites can be worth investigating. gumtree.co.uk, for example, allows people to sell items for a set price, rather than auction them. Those logging on can find goods for sale in their local area – this is particularly useful for those selling large items where postal costs would be prohibitive.

Other alternatives include eBid (http://uk.eBid .net), CQout (www.cqout.com), Price Minister (www.priceminister.co.uk) and Vivastreet (www.vivastreet. co.uk). Both Amazon and Play.com also allow users to sell on books, CDs, DVDs and computer games.

4 Time January's spending carefully

Make sure you know the statement date on your credit card, and do not add any more debts until this date has passed. That way your January spending will not hit the bill until February, giving you a bit of breathing space.

5 Cash in savings

Savings can be very hard to come by and the last thing you want to do is cash them in to pay for a Christmas splurge. But interest rates on savings are low, while credit cards are expensive. It makes no sense to leave savings in an account paying a low return of perhaps 1 or 2 per cent after tax, while your card issuer is charging you nearer 20 per cent.

6 Can your mortgage help?

You must pay your mortgage as an absolute top priority, as failing to do so could cost you your home. However, certain kinds of specialist mortgage may offer scope for delaying a payment or two, while you clear more expensive credit-card debts.

If you have a flexible mortgage, you can sometimes take a payment holiday, particularly if you have overpaid in the past. Similarly, an offset loan may offer scope to temporarily increase your mortgage debt.

Provided this is a very short-term move, it may be worth considering. But always speak to your lender first, to confirm your understanding of the way your home loan works. Make sure there are no additional charges attached to the facility.

Similarly, it may be that it is possible for you to postpone or reduce a payment or two, but only once a year. If you use that opportunity up now, and are, for example, made redundant later in the year, you may come to regret it.

7 Get rid of store card debt

Store cards are often sold to customers by offering substantial discounts on the price of whatever they are buying. However, if you are unable to pay the bill when it comes in, this kind of debt is usually the most expensive. Transfer the store-card balance to a cheaper credit card.

8 Get zero interest plastic

Virgin Money, Santander, Halifax, HSBC and Nationwide all allow you to transfer outstanding balances to a card, and enjoy zero interest for between 13 and 16 months. However, you have to pay a transfer fee of around 3 per cent, so the card isn't completely free.

Furthermore at the end of the period interest is charged at between 16.6 per cent and 19.9 per cent, so you must get the debt down by then.

9 Get a separate card for buys

It will pay you to get another zero card for purchases and to keep the two cards quite separate. Tesco, Sainsbury's and Marks & Spencer all have zero interest cards for purchase for between 10 and 12 months, after which interest clocks up at 16.9 or 15.9 per cent.

It is important to keep zero transfer and new purchase transactions separate, as these will accrue interest at different rates, and the cheapest rates are always settled first. This can make it much more difficult to get the debts down.

10 Always pay the minimum repayment

Card issuers require you to make a minimum payment which you must do or incur penalty charges, which will push you deeper into debt.

Only paying the minimum will take you a very long time to clear the debt. However, if you cannot clear it all this month, but can next, then it can be worth paying only the minimum. If you can't clear the whole debt you are charged interest on it all anyway, even the bit you repay.

So if the bill is 100, and you pay off 95, you are charged interest on 100, not just 5.

11 Draw up a repayment schedule

The important thing is not to panic but come to terms with how much you owe and how you will repay it. Be realistic, but draw up a timetable to paying off the debts and stick to it.

If big bills like car or household insurance also come in during January or February, then talk to your insurer about moving renewal dates until later in the year.

12 Save money elsewhere

You may be able to get other bills down, which will free up money to pay off debts. Life insurance is worth revisiting, as the cost is falling all the time. Nationwide Building Society says that former smokers can save about 15 a month on their life cover. Try lifesearch. co.uk to find a competitive quote. But on no account cancel cover until you have a replacement policy in place.

Live frugally. Do not throw away Christmas food but find some way of freezing or reinventing it, to keep supermarket shopping to a minimum.

13 Speak to your energy company

If you are expecting any eyewatering gas or electricity bills, speak to your provider and see if payments can be scheduled over a few months.

14 Seek advice

If your debts are overwhelming and beyond your ability to deal with them, you must seek advice. A good first port of call is Money Advice Scotland (www.moneyadvice scotland.org.uk), or your local Citizens' Advice Bureau.

These will help you negotiate with your loan companies, and can usually reach manageable terms.

If you are beyond even this, Money Advice or CAB will help you decide whether to begin formal insolvency.

15 Never borrow to get out of debt

It can be very tempting when bills are flooding in, to borrow to pay them.

This never works and only gets you deeper into the debt trap.