Got a financial hangover? Budget your way out of New Year debt
Nearly half of us paid for the festivities on credit, so resolve now to get a financial grip. Julian Knight shows how to pay the bills
Sunday 06 January 2013
After the Christmas and New Year party comes the financial hangover. Consumer group Which? reckons that 46 per cent of the population paid for at least part of the festivities on credit. This is probably an exaggeration, but there is no doubting that millions of Brits enter 2013 with less hope but more debt.
Mortgages aside, Britain's adults on average owe more than £8,000. Factor in mortgages and the debt really takes off, with each adult owing an average of £57,000 or an eye-watering £1.45trn in total. So understandably many Brits feel the dead hand of debt on their personal finances and the new year is as good a time as any to sort out a plan on how to deal with it.
Sarah Pennells, the founder of financial advice site SavvyWoman.co.uk, says the first step is to take a few minutes and assess exactly where your finances are.
"Draw up a list of everything you owe, who you owe the money to, how much you're paying and how long until you've paid it off. Then it's time to work out a budget. By doing this you'll know what you need to spend and what you have left over to pay off your debts. There are free budget calculators on the Government's moneyadviceservice.org.uk website."
Free-to-use debt advice firm Payplan says many consumers fall at this first budgeting hurdle by failing to assess thoroughly where their finances stand, so when the numbers don't add up they can often fall back on the crutch of debt.
"The best advice is if your income is variable for budgeting purposes just show the minimum income you usually earn. And make sure you include everything such as your TV licence, car tax, MOT, car repairs and so on," says its director Jason Eaves.
If you find that you have a little surplus then target the priciest debt first, says Ms Pennells.
"Even a small amount will make a difference, especially if you're paying the minimum on your credit card," she explains. "On a £1,000 credit card debt, doubling your monthly payment from £25 to £50 will trim around 12 years off the repayment time – it will fall from 15 years to less than four."
The advice seems to be to take each debt in order and work down them from the most expensive. So usually an overdraft will be more expensive than a credit card, while a card is pricier than a personal loan which in turn will cost more than a mortgage.
But if you don't have a surplus each month, even after some cost-cutting, then there is still a chance to push down on your debt by shifting to lower cost credit. Andrew Hagger, a personal finance expert at Moneycomms, says that even shifting from relying on an overdraft to a credit card can reduce outgoings and speed up debt repayment – provided that no new debts on the card are accrued, of course.
"If you're £500 overdrawn for at least three weeks of every month, you could end up paying £20 per month in charges with some banks, and that's a hefty £240 hole in your budget you could do without. If you take out a rate for life card from MBNA, you can transfer some of your credit limit into your bank account and wipe out the expensive overdraft.
"With the interest rate just 5.9 per cent APR for as long as it takes you to clear the debt, by paying £20 per month to the card instead of to the bank in overdraft charges you'll have wiped out your debt in two years and three months. The total cost to you will be £42.50 which is a one-off money transfer fee of 1.5 per cent (£7.50) and interest costs of £35."
As long as you have kept up your repayments and are in employment, then there is a good chance that your credit record will be clean which in turn gives you options, particularly when it comes to remortgaging which can help push down out- goings and release cash to pay down other pricier debts.
Mark Harris, the chief executive of mortgage broker SPF Private Clients, says: "Your mortgage is likely to be your biggest outgoing so it makes sense to check if you could reduce your monthly payments. We are seeing some of the cheapest mortgage deals ever so it is well worth finding out if you qualify for one."
If the answer is no, then Mr Harris advises: "If you have a high loan-to-value so can't remortgage, think about overpaying this year. This will improve your equity stake, making it easier to remortgage onto a better rate." As for the choice of mortgage product, Mr Hagger recommends that borrowers look at fixed rate deals.
"You will know where you are with a fixed rate and won't be subject to nasty interest rate shocks for the term, and in addition rates are at a historic low at the moment," Mr Hagger said.
However, if your finances are still in a more parlous state and the Christmas expense has left them on the brink, then it's crucial not to ignore the situation. If you're struggling to pay the important bills, such as rent or mortgage, council tax or energy bills, you should get help from one of the debt advice charities such as Stepchange, Citizens Advice or National Debtline.
Some will help face-to-face, others advise over the phone or anonymously online. Don't put off seeking help or be embarrassed, as you can guarantee that they will have seen far worse than your situation.
"Whatever you do don't pay for debt advice as that means less of your money will be going to reduce your debts," Ms Pennells warns.
Debt tips for Payplan
Create a realistic budget using the minimum income you usually earn, and remembering to include paid annually or monthly. If you have a deficit:
Can you generate extra income? By working more hours, or claiming all the benefits you are entitled to?
Are you getting the cheapest deal? Check your utility tariffs.
Check your direct debits and standing orders Annual direct debit claims can be forgotten
Obtain a credit file report Check that the data is correct and get a sense of your credit rating score
Negotiate a reduced repayment programme If still in deficit speak to all your unsecured creditors
Sell assets you no longer need
What to pay first
It is important to distinguish between priority and non-priority debt
Priorities Mortgage or rent; food, heating and lighting; council tax; any HP agreements
Non-priorities Unsecured debt: overdrafts, credit and store cards, catalogues, standard and payday loans
If you move debt onto a 0 per cent credit card do not buy anything with it
The FTSE 100 is inching closer to its record high but can it maintain these levels?
MPs call for Equitable Life policyholders to be paid £2.8bn owed by government
Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity
Bank-beating exchange rates on your international payments
Weekly Money: Round-up of the personal finance stories you may have missed 23-27 February
- 1 The black and blue dress: Makers considering a white and gold version
- 2 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 3 What color is The Dress, white and gold or blue and black? An eyewitness gives a definitive answer
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 Madonna claims jokes about her age tantamount to racism: 'No one would dare to say a degrading remark about being black'
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads