Jenny Ross: Zero in on managing your debt

Why worry about foot placement in dance lessons when you could be shuffling your bank account? Picture: Getty
Why worry about foot placement in dance lessons when you could be shuffling your bank account? Picture: Getty
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Shift overspending at Christmas to an interest-free card to fix finances, says Which?’s Jenny Ross

I always experience a weird form of culture shock at this time of year. The last week of December and the first week of January may be side by side in the calendar but in every other respect they couldn’t be ­further apart. We’re shunted from our little festive cocoons where all is calm, all is bright, and mince pies are a perfectly acceptable breakfast food, to a more businesslike world where the sudden absence of twinkly lights makes everything feel that bit gloomier.

This vague sense of gloom often extends to our finances, which, like our Christmas jumpers, tend to have been stretched by festive excess.

That’s why money-related goals routinely end up on the lists of new year resolution-makers. But don’t consign these goals to the same fate as that promise you made in January 2011 to learn Mandarin, or 2014’s commitment to take up ballroom dancing. Unlike learning a language or mastering a foxtrot worthy of a Strictly champion, it’s surprisingly easy to make positive changes to your finances – and a lot less time-consuming. Here are two simple ways you can get 2019 off to a prosperous start.

First, take stock of any debt you’ve built up over the festive season – and make sure you’re not paying more interest than you need to. If you have a sizeable credit card balance that you’ll struggle to pay off in one go, now’s the time to shift it to a 0 per cent balance transfer deal. This will allow you to clear it faster and more cheaply, as all your repayments will be going towards the debt, rather than the interest too.

It’s no coincidence that this is the peak month for credit card balance transfers. A total of £1.62 billion was transferred in January 2018, according to figures from UK Finance, an average amount of £2,382 per transfer.

When looking for a 0 per cent balance transfer card there are two things you need to look at: one is the length of the deal – in other words, how long you’ll have to repay the amount you owe before you start being charged interest. Based on current deals, this interest-free period could be anything up to 32 months. The other thing to bear in mind is that in most cases you’ll be charged a percentage of the amount you’re transferring as an upfront fee. So if you’re shifting a balance of £2,000 and the fee is 2.3 per cent, you’ll need to pay £46. Generally speaking, the longer deals will have higher fees, so don’t go straight for the longest one if you’re confident you’ll be able to clear the debt in a shorter time.

A simple way to find the best deal for you is to divide your outstanding balance by what you can afford to repay each month. So if you owe £2,000 and you can pay off £100 a month, you’d need a card with a 0 per cent deal lasting at least 20 months. Once you’ve moved the debt, make sure you pay at least the minimum each month or you could end up losing the 0 per cent deal and reverting to the lender’s (much higher) standard interest rate. Beware of spending on a balance transfer card – this can prove costly unless it also offers a 0 per cent period on purchases.

After making sure your credit card isn’t costing you more than it needs to, ask yourself whether you’re getting the best deal from your current account.

It took me the best part of a decade with the same high street bank to realise that my answer to this question was a firm ‘no’ and that my ‘loyalty’ was in fact pure laziness. I moved to an account that gave me a cash bonus of £100, as well as access to a regular savings account paying a tidy 6 per cent.

My switching appetite suitably whetted, I decided to look elsewhere when this rate expired a year later, and opted for an interest-paying current account.

If you’ve also stuck with your bank out of habit, rather than the knowledge that its current account is the best one for you – get switching.

No, it’s not a hassle – the ­process takes just seven ­working days and your new bank will transfer your regular incoming and outgoing payments, along with your current balance. Any payee details saved for online and telephone banking will also be moved over, and any payments made to your old, closed account will be automatically redirected to your new one.

Think about which account is the best match for your ­circumstances – if you’re overdrawn, focus on finding one that will cost you less.

Whether you’re offered an overdraft facility and whether it matches your existing limit will depend on the new provider. If you always stay in credit, look for an account that will pay interest on your ­balance.

Some banks dangle a financial carrot to tempt switchers. While basing your decision entirely on a short-term perk isn’t always advisable, these incentives can outstrip what you’d earn in interest over a year – you can currently get as much as £135 in cash, or £185 in vouchers.

So there we have it, two straightforward ways to give your finances a mini new year makeover. Now you can focus on nailing that foxtrot technique.

Jenny Ross is Which? money editor