Christmas, Credit Cards and Consolidation

In the post-Christmas period, some of us may be feeling the effects of overindulgence of one type or another. Hangovers come in many forms. While many among us may have indulged in too much Christmas cake or a few too many celebratory drinks, others may be feeling a different sort of hardship – the debt caused by holiday spending.

It can be easy to get a bit carried away with gift buying. It’s also great to be able to have friends and family over for a big meal. And who doesn’t enjoy going away over the holiday period?

For all of these reasons, debt incurred over the end-of-year period can be a challenging reality come January.

If that debt is the high interest credit card sort, paying it off quickly should be a priority. If you don’t have the cashflow to pay it off with haste, you might be able to consolidate your debts and refinance at a lower rate.

Firstly, what is debt consolidation? Debt consolidation entails taking out (or extending) one loan to pay off many others which can offer advantages including securing a lower interest rate or a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation usually involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateral security allows a lower interest rate than without it as the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

The best practice with debt consolidation is to continue to make the same high repayments with the new loan and with the lower rate you should have your loan reduced much sooner and with the added simplicity of one repayment.

Some other simple Dos and Do nots for trying to pay cards off:

  • Resist taking out new interest free cards to pay out existing card. Often people don’t cut up the old card and more cards make your credit more difficult to manage.

  • If you have disposable savings you can do without for a short period, you are better off paying the credit card off first as the interest on the card will be much higher than the interest you earn on savings accounts.

  • Try negotiating with your card provider. Check your statements for any over drawn fees you may not be aware of as most lenders will happily waive this if you have a good repayment history. There is no harm in asking and you might be pleasantly surprised!

  • Cash in your points. If your card allows, resist that tempting gift voucher and cash in your card points for money to pay off your card.