Have a plan to pay back your festive debt!

We all know the festive season is an expensive time of year, and 2020 was a tougher year than most. Our research has told us that 36% of UK adults accumulated an average debt of £220 on Christmas spending alone.

While lockdowns and social restrictions did mean a lucky few were able to put more money to one side in 2020 due to a reduction in their outgoings, not everyone was as fortunate.

Our research has shown us that a large number of people in the UK found it more difficult to save. This has left an increasing number of people feeling pessimistic about their financial situation coming into 2021. In fact, many people in this situation don’t have a plan in place to pay this money back.

To help get your finances back on track we’ve put together this handy guide.


1. Clear your credit card balance

Small changes to your credit card repayments each month can make a huge difference to your credit card balance in the long-run.

For example, if you have a £220 balance on a card, with an interest rate of 19% APR, and you’re paying back 2.5% of the balance each month, it’d take you almost four and a half years to clear it. And, it would cost you over £90 in interest.

While making sure you are at least paying your minimum payment each month keeps your credit profile healthy, you might not be reducing your balance as quickly as you’d like. This means, in the long run you’ll pay more than you would in interest than if you cleared your balance sooner.

There are two ways you can reduce the amount of interest you pay:

  1. Switch to a 0% balance transfer credit card
  2. Increase your monthly payment

If you are paying interest on your balance, it may be worth looking at switching to a 0% balance transfer credit card. This way, you can move a debt from a card you’re being charged interest on to a card with no interest.

Alternatively, if you don’t want to apply for a new credit card, or you can’t, increasing your monthly payment will reduce the total amount you end up paying and it’ll clear your balance sooner.

If you added £10 to your minimum payment amount each month, you could clear your balance in under a year and half and you’d slash the interest you’d pay to under £30.


2. Ditch your overdraft

In 2020, overdrafts became more expensive - most banks now charge between 35% and 40% for agreed current account borrowing.

Meaning, if you find yourself frequently overdrawn on your account, or your overdrawn for long periods of time this can be one of the most expensive forms of borrowing.

If you’re currently in your overdraft, and you’re noticing the charges are becoming unaffordable then it might be worth considering a credit card that allows you to transfer money. This would allow you to switch money from your credit card into your bank account, which could reduce your borrowing costs by at least 50%.

If you can’t, or don’t want to, take out a credit card, you could consider using an existing credit card (if you have one) for some of your monthly purchases. The interest rate on your credit card is likely to be much cheaper than the potentially 40% charge on an overdraft.


3. Use your savings

If you do have any money set to one side, then it’s worth considering using your savings to clear your debts. This is because the interest you are earning on your savings is likely to be much less than the interest you are paying on your debts.

While having money set to one side is a comfort, in the long term you’re much better off clearing your balance and having an empty credit card for emergencies. Then when you have the opportunity to start saving again, you can do so without any debts and interest payments hanging over you.


4. Clear your most expensive debt first

If during 2020, and specifically the festive period, you’ve used different forms of lending and you’re not in a position to pay them all off at once, you should focus your efforts on the most expensive.

While you’ll still need to make any minimum payments (this will prevent any missed payments being added to your credit report), clearing your most expensive debt first will reduce the amount you pay overall.


What about buy now, pay later debts?

Buy now, pay later options can be an effective way to spread the cost of larger purchases. However, it can be dangerous to become reliant on this payment method.

Debts can soon be accumulated and while a ‘hard’ credit check isn’t required to obtain a buy now, pay later deal, missed payments will find their way onto your credit record and therefore, will damage your ability to obtain credit in the future.

If you’re tempted by using a buy now, pay later scheme be sure to keep a record so you know how much you owe and when you have to pay it back. And don’t buy on impulse. It’s always better to sit back and take time to reflect on whether a purchase is necessary, especially if you’re having to borrow money to make the purchase.

If you have accumulated buy now, pay later debts over the festive period, be sure you are aware of the amount you owe, when your payments are due and create a budget to help you clear the debt. Avoid making any new unnecessary purchases before you have cleared the debt and again, when using buy now, pay later in the future be sure to question whether or not the items in your basket are necessary and whether you can realistically afford them in the time given to repay the money borrowed.


If you are struggling with debt and you need more advice and support, there is help available.

If you’re struggling on your own to get your finances back on track, there is support available to you and it’s important to get help quickly before it escalates.

Talking to a non-profit agency, such as Citizens Advice, StepChange and National Debtline are the best place to start. These services are free to use and they’re able to talk to you about your individual situation and explain the options available to you.

Category: Your Money Credit Cards
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