After the party, your financial detox regime

Wallet worn out by Christmas and New Year? How to cure your savings and debt hangover
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The Independent Online

Just as they promise never to touch another drop of alcohol, so millions of weary, spent-out consumers will be responding to the Christmas and New Year party season by swearing that this will be the last time they leave their finances in ruins.

If it's not credit cards stretched to the limit and loan repayments looming, it's bank accounts in the red or savings languishing in poorly-paying accounts.

But if you're in this position, don't rush into a full workout. Taking measured steps to refresh each aspect of your finances will leave your money in good shape by the end of the year - and equipped to cope with the next hangover.

Tackle your debts

Over 40 credit cards offer 0 per cent transfer deals, so there's no reason to pay double-digit interest.

Balances on expensive credit or store cards should be switched and the original plastic cut up.

HSBC's card offers 0 per cent for nine months on both balance transfers and new purchases, giving you plenty of time to whittle down what you owe.

Remortgage

Your home loan is probably the area in which you can make the greatest savings over the year.

"You're paying over the odds if you haven't remortgaged for some time and are on your lender's standard variable rate," says Mark Harris, managing director at broker Savills Private Finance, though you should weigh the cost of setting up a new loan against potential savings.

Remortgaging could also help elsewhere. "It may be worth extending the loan to raise enough cash to clear your [other] debts," adds Mr Harris. "But you should then aim to overpay on your mortgage to clear this debt quickly."

Save more

Once your debts are under control, start putting even the smallest sum aside.

Forgo a workday latte plus blueberry muffin and you could be £70 a month better off. Painless savings can also be made by switching to a cheaper energy provider or hunting down cheaper car, home and even life insurance.

Save smarter

Unless your savings account pays over 3 per cent - 4 per cent for higher earners - you're losing money after taking tax and inflation into account.

According to the independent financial adviser (IFA) Bates Investment Services, 62 per cent of accounts don't offer higher-rate taxpayers a real rate of return, so keep an eye on the interest and, if necessary, switch.

ING's savings account was once a market leader. Its rate has now been cut to 4.5 per cent while Newcastle building society, for instance, pays 4.9 per cent on its Net Savings issue 4.

Current accounts

A bank account is a very personal thing: one size doesn't fit all. The key factor to consider is the rates - either on balances in credit or on overdrafts.

If your finances are generally healthy, then the amount the bank pays you will be more important. But if you're the sort who needs to dip into the red occasionally, check the fees and charges. And beware particularly of exceeding your unauthorised overdraft limit. Some banks will hit you with a penalty of up to £30 for this, plus extra charges of up to £35 if you don't have the funds to pay any standing orders or direct debits.

Check your portfolio

Every year, billions of pounds of our hard-won cash goes to waste in underperforming investments, known as "dog" funds.

It's all too easy to set up a monthly direct debit to pay £100 or so into a fund and then to feel you have done your bit. You haven't.

You must monitor your investment portfolio at least once a year to make sure it is still doing well.

But don't sell out of a fund if it doesn't deliver the goods over a few months, or even a whole year. The "dogs", points out IFA Bestinvest, are those that perform worse than their sector peers over a number of years.

Websites like trustnet. co.uk and bestinvest.co.uk let you compare your funds against rivals.

Start a pension

If you're not already saving for retirement, you need to start - even if you have just turned 25.

An occupational pension is your best bet, particularly if you are one of the select few still with access to a final salary scheme.

If you don't have this option, your choice of pension will depend on your own ambitions.

If you're happy to let a life company manage your money or just wish to make small savings, opt for a low-cost stakeholder pension. But if you want a more active role, you could consider a self-invested personal pension (Sipp). Some firms, such as IFA Hargreaves Lansdown, now offer low-cost Sipps with contributions from as little as £50 a month.

To hunt the best savings, mortgage and credit card rates, visit www.moneyfacts.co.uk or www.moneysupermarket.com

For competitive life cover, try www.lifesearch.co.uk

To compare home, motor and travel insurance quotes, go to www.insuresupermarket.com

Looking for credit card or current account deals? Search here

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