Spent a bit too much for Christmas! Switch cards to clear Xmas debt
- Too much festive spending can leave many languishing in their overdraft
- An effective way of managing your overdraft is to get a money transfer card
- Those with low levels of Christmas debt should pay it off as quickly as possible
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-a-half 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.
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-a-half months to pay it off
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 per cent — 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 per cent 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 per cent on the amount of debt transferred. But customers pay an annual interest rate (APR) of 19.9 per cent 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 per cent fee and has an introductory term of 12 months, after which you pay 24.9 per cent APR. The MBNA Limited Long 0 per cent Money Transfer Mastercard charges a 2.99 per cent transfer fee and has an introductory term of 24 months, after which you pay a 22.9 per cent 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 per cent. It charges 20.9 per cent APR after the introductory term. MBNA also offers a card with a 26-month introductory period but a transfer fee of just 1 per cent.
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 per cent.