Ditching the holiday debt

In the post-Christmas period you might have experienced ‘statement stupor’: the sense of bewilderment when you check your credit card statement and realise that you spent more than you thought.

Post-Christmas credit card statements have a nasty habit of showing up just as we’re taking down the last of the festive decorations. Sometimes purchases that we’d forgotten about making in the hectic weeks of December, appear on card balances, further blowing out the debt.

If you can relate to statement stupor, we have a couple of ideas for helping you rid yourself of the holiday debt.

Clearing the debt

Consolidation loan

This is a great idea if you have multiple debts. Many credit cards and personal loans come with ongoing fees, and you’ll probably find that each product has a different interest rate depending on the issuer.

When it comes to credit cards, one factor that is common is the high rate of interest charged on card balances – sometimes as high as 21% per annum.

Additionally, you’re most likely trying to manage payments due at different times of the month while juggling other financial commitments like mortgage payments and living expenses.

Consolidating all your debts into a single personal loan, will enable you to:

• pay only one ongoing fee
• have just one repayment each month so you can manage your finances better; and
• enjoy a lower interest rate

Balance Transfer

Many financial institutions invite you to transfer your card balances to one of their cards. To make it worth your while, they generally offer a low interest rate on the amount you transfer for an introductory period. Sweetening the deal further, many waive, or reduce, the annual card fee.

These arrangements can work very well whether you have just one card or several. While these deals sound great on paper, it’s very important that you understand the terms and conditions. For example:

• The interest-free period is usually for a limited introductory time, such as the first 6 months. After that, the revert rate will be charged on any remaining transferred balance. So it’s important to check the interest rate that will apply after the introductory period has expired.
• Annual card fees may be waived for the first year, after which an annual fee may be introduced.
• It’s common to find that the introductory interest rate only applies to the transferred balance and that any purchases you make using the new card will attract the normal interest rate.

As they say, the devil’s in the detail, so before signing up to anything, make sure you read – and understand – the fine print, and seek professional advice if you’re not 100% comfortable.