The best way to clear your holiday debt

As autumn approaches, Robert Powell rounds up the best ways to get rid of your summer debt...

I apologise in advance for what I am about to write.

It is 113 days to Christmas.

Horrible I know, and made even worse by the fact that we haven’t actually had a summer this year. Or maybe I blinked for slightly too long back in July and missed it.

In all seriousness, with prices continuing to rise, this Christmas is set to be a frugal one for many. And that’s why it is essential that you get on top of any debts that may still be lurking around from the not-so long summer holiday months.

But what’s the best way to do this?

A word of warning

Most of the methods of clearing debt that I’m going to outline involve using some sort of credit facility. In other words, borrowing more money at a lower (or a non-existent) interest rate to your current debt. This minimises interest charges and allows you to pay off your debt over a longer period of time.

However, it is worth pointing out that these solutions only work if you make all of your repayments in full and on time. In other words, you’ve got to play the game the bank’s way and jump through all the appropriate hoops or you could find yourself in a worse-off situation than when you started.

Any debt solution based on taking out new credit cards or overdrafts will also have to be accompanied by a change in behaviour if you want to permanently stay out of the red. Budget in repayments to your monthly finances and start to rein in any unessential spending. Indeed, there’s a fine line between sensibly spending on credit and living outside of your means. Read Five steps to becoming debt free forever for some more tips.

Right, lecture over. Here’s the practical side...

Balance transfers

If you have a stack of debt sitting on a credit card accruing interest, getting hold of a 0% interest balance transfer card could be a good option. This breed of flexible friend will hold debt from another credit card at 0% for a set number of months. This allows you to avoid any interest charges as you clear off the balance.

Here are the top balance transfer cards around at the moment...

Source: lovemoney.com credit card centre

As you can see, the leading balance transfer card from Barclaycard now offers a massive 22 months at 0%. This means that you can spread the repayments on your debt over almost two years, without paying any interest. However, you should ensure that you do clear the whole of your credit card burden within the 0% period, or you’ll be hit with hefty interest charges.

Alternatively if you fail to repay the whole balance, you could just transfer your debt onto a different 0% card. But remember that banks do not let you shift debt between two cards different cards that they have issues (for example between two Barclaycards, or between an MBNA card and a Virgin card). Read The secret truth about your credit card to find out more.

As always, there is a catch to these debt-eating deals. You will have to pay a fee whenever you transfer anything over to a balance transfer card. These charges are typically around 3% of the amount transferred.

Overdraft debt

0% interest credit cards can also be used to clear pricey overdrafts. To do this you’ll need to get hold of an account that charges 0% on money transfers. These deals allow you to shift cold, hard cash from your credit card across to a current account and then repay the debt without accruing any further interest. Useful if you have an expensive overdraft that needs filling.

The only two cards around at the moment that offer this function are the MBNA and Virgin Money cards that I detailed in the table above. Both deals offer 19 months at 0% interest with a 4% fee when you make the money transfer.

But again, you should ensure that you repay the money transfer debt in full before the 0% period runs out or you could find your balance beginning to grow again.

If you really don’t fancy taking out a credit card to shift your overdraft debt to, you could get hold of a current account that doesn’t charge interest on overdrafts instead. However, you should make sure that the bank will match your current overdraft, so that you are able to shift the whole balance across.

Santander is the market leader for 0% overdrafts at the moment – offering no charges for a full 12 months. Head over to our current account centre for more details of this deal as well as other interest-free overdraft accounts.

Purchase cards

A further way to pay off a pricey overdraft is to use a credit card that offers 0% interest on new purchases for all of your spending. This frees up your monthly income to clear off any overdrafts that may be totting up interest charges. If you do take this route, make sure you pay off all the purchase debt before the 0% period runs out.

Here are the top purchase cards around at the moment...

Source: lovemoney.com credit card centre

Of course 0% purchase cards can also be used for straight-up spending and are a popular option for funding summer holiday costs and Christmas shopping bills. In fact, research released last December from Sainsbury’s Finance showed that around 29% of last-minute festive shopping was placed on credit cards.

However as I mentioned earlier, there’s a fine line between using credit cards sensibly when you need a little extra immediate cash but know you can foot the bill further down the line, and living outside of your means. Indeed, you should be constantly aware of this line anytime you reach for your flexible friend. Head over to Ten things you need to know about credit card debt for some more advice and information.

More: Get a 0% credit card | The best credit cards for big purchases | The best purchase you’ll ever make