10th January 2019
Christmas is an expensive time of year as the cost of presents, decorations, meals out and entertaining all add up. Individuals intend to spend £567 each at Christmas, with 46% planning to pay for it using credit cards, store cards and overdrafts.
It is always better to avoid debt by saving for Christmas in advance but for those who have found themselves in this situation, WEALTH at work has created top ten tips on how to pay off Christmas debt and help people get their finances back on track in 2019.
1. Plan your budget – Individuals should check their bank statements and make a list of what they are spending each month. This will highlight where your money is going and where savings could be made. By getting your finances in order, it may be possible to free up money to pay off debt. Visit the Money Advice Service ‘Budget Planner’ to plan your 2019 budget.
2. Use your savings – If you have savings where the interest rate is less than the interest on your debt, consider using these to pay off your debt.
3. Check interest free deals – Incentives such as interest free periods can seem attractive but make sure you have paid off the debt before the deal ends, to avoid the high rates of interest.
4. Balance transfers – If you have debt on a credit card with a high rate of interest, it may be possible to transfer this balance to a credit card with an interest free introductory period. Fees may apply but often these are significantly less than the interest you were paying and this can give you time to repay the debt.
5. Beware of pay day loan companies – Credit cards, overdrafts and in-store finance usually charge 15-20% interest but pay day loan companies charge 2,500% and above! If you have a loan with a company like this, and are struggling with repayment, it may be possible to consolidate the debt and transfer the balance to a loan with a lower interest rate. Speak to the Citizens Advice to find out what options are available to you.
6. Plan to pay off debt as soon as you can – Someone paying £300 a month on a £3,000 debt with interest charged at 18%, would pay £252 in interest over 11 months. If they could only pay £100 per month, it would take 3 years and 4 month to clear the debt, and they would pay £908 in interest. If they could only pay £30 per month, it would take 10 years, and 10 months, and they would pay £3,495 in interest! It’s always best to make paying off your debt a priority.
7. Check your council tax – Council tax is typically taken over 10 months with an annual two-month break in February and March. This break could provide a useful source of money to pay off those debts. For example, the average council tax charge for Band D in 2017/2018 was £1,591, so the tax break could leave someone with £318 spare to pay towards their debts. There is another option which would be to switch to paying it over 12 months where offered and use the savings each month to reduce any debt.
8. Price check all providers – Price comparison websites will help you compare the different deals for a range of household bills, from utilities, to car and home insurance and the savings can be significant. For example, the average household can save £300 per year by switching gas and electricity provider.
9. Tax savings – From April 2019, the personal allowance (i.e. the amount of income that you don’t have to pay tax on) will increase from £11,850 to £12,500*. This could save a basic rate tax payer around £13 a month (including National Insurance savings as well), and a higher rate tax payer £43 a month. It might not seem like much, but basic rate payers could save £156 a year, and higher rate payers could save £516, which could go towards paying off those debts.
* Income Tax rates and bands will differ for Scottish residents
10. Plan for next Christmas – Once you’re back on track, keep an eye out for special offers and deals on things you know you will have to buy for Christmas 2019, as there can be some significant savings to be made throughout the year.
Jonathan Watts-Lay, Director, WEALTH at work – a specialist provider of financial education and guidance in the workplace supported by regulated advice for individuals, comments;
“If Christmas takes you into debt every year, why not suggest to friends and family that you have a less expensive one in 2019 with a price limit on gifts for example. They may also find it an expensive time of year and be relieved at your suggestion!”
He continues; “However, it’s always better to avoid debt by saving for Christmas or other big expenses in advance. Once you are able to get on top of your debts and pay them off, you may want to consider getting into the habit of putting some savings aside for next Christmas.”