As you get fit, your finances should sweat

Paying a price for Christmas and New Year excess? Esther Shaw shows how to knock your savings and debts into shape
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The Independent Online

Congratulations if, a full week into 2005, you've stuck to your New Year resolutions by cutting out smoking, starting a diet and joining a gym.

Congratulations if, a full week into 2005, you've stuck to your New Year resolutions by cutting out smoking, starting a diet and joining a gym.

The excesses of the festive period don't end with our health and figure, however; what many of us really need is a workout for our finances. Stick to a new regime for the full 12 months and you should feel a warm glow in your bank account.

Here, we help you to fight the financial flab.

Credit card debt

January may be synonymous with spending in the sales but be frugal and tackle the Christmas debt hangover instead.

John Fairhurst, managing director of debt-management service Payplan, urges people to be "brutally honest" about how much they put on credit over the holiday. If you're struggling, draw up a budget to work out what you can afford to repay each month, he says.

Make the most of credit cards charging 0 per cent for balance transfers as well as providing 0 per cent introductory offers on new purchases. But make a note of when the 0 per cent period expires so you can clear the debt by then and avoid hefty interest charges.

Before switching your debt, shop around for offers; use online comparison sites such as www.moneysupermarket.com to research the best deals.

Alternatively, think about consolidating your credit debt and overdraft in an unsecured personal loan. This will help you see clearly how much you owe and let you repay the whole lot in single monthly instalments. Competitive deals include those from Alliance & Leicester and Direct Line, both offering a typical annual percentage rate (APR) of 5.9 per cent. Don't assume a loan will always be cheaper, though, as spreading your repayments over many years could be more expensive.

Savings/current account

Before you start saving, remember that interest on borrowings is usually higher than on savings - so try to clear your debts first. That said, don't neglect savings. Financial advisers recommend putting three months' salary in an instant access bank or building society account in case of emergencies.

Alternatively, you can save up to £3,000 tax-free in an instant access mini cash individual savings account (ISA). Abbey, for example, is currently offering a no-notice postal cash ISA paying 5.35 per cent.

If you're not sure you have enough discipline, set up a standing order to save a regular sum each week or month.

Consider switching your current account if you bank with Barclays, HSBC, Lloyds TSB or NatWest. These tend to pay paltry levels of interest when you're in credit and charge hefty overdraft rates. For a better deal, Alliance & Leicester's Premier Plus account pays 5.37 per cent on balances of £1.

Insurance

See what deals other companies are offering when you're renewing your motor, home, travel, holiday or pet insurance. You can usually chop your bill by more than a quarter by going elsewhere. Plenty of price-comparison websites, such as www.insuresupermarket.com, let you check the details.

Don't purchase cover basing your decision on price alone; check the small print to see what you're covered for. For example, switching from a five-year-old life insurance policy to one with cheaper premiums could cost more in the long term if you fall victim to certain conditions that are excluded.

Steer clear of travel agent insurance since this is usually horribly overpriced.

Mortgage

Industry opinion may be divided over the next interest rate move - up or down? - but be sure to check you're not paying too much for your home loan.

If you're on your lender's standard variable rate, look at moving to a fixed or discounted deal "to make quite significant savings" says David Hollingworth of independent mortgage broker London & Country.

Some lenders charge a redemption penalty if you switch loans, he warns, so check before you do so. However, your new lender may help with legal and valuation fees.

If you have more than £20,000 in savings, look at an offset deal that sets these against your loan and cuts your interest payments.

Pension

Pensions remain one of the best ways to plan for retirement, due to the tax relief they offer.

If you already have one, try to raise your contributions; the maximum amount you can invest each month depends on your age, rising to 40 per cent of salary for older workers.

Although final salary schemes are fast disappearing, many company plans will contribute on your behalf.

As a rule, if you stay for at least two years with an employer and don't bother to join its contributory scheme, you are throwing away "free money".

If you have a number of small pension pots with different firms, it could be worth paying a pensions adviser to stream- line your retirement plans.

Tax

Those with 2003-04 self-assess- ment returns to file shouldn't start the year £100 down by failing to get forms in by the 31 January deadline (see page 21 for further details).

Everybody should use up their £7,000 tax-free ISA allowance if possible and it will also be worth transferring any financial products yielding taxable income to a spouse paying tax at a lower rate (or not at all); similarly, the same spouse should open a savings account to benefit from less taxation.

Bills

Annual savings of more than £300 are up for grabs by changing gas, electricity and phone supplier where appropriate, says Tim Wolfenden of Uswitch.com. People who have never moved supplier pay 20 per cent more for their energy than they should.

Looking for credit card or current account deals? Search here

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