While the festive period can cause us to be more generous than usual and encourage us to have a good time, the New Year is when reality sets in and we look at how much that bit of Christmas indulgence has cost us.

We’re each likely to have spent an average of £375 over Christmas, with many using credit cards, store cards or overdrafts to fund our party spirit. But if you can’t afford to pay this off all in one go, how can you clear your debt in the best, quickest and most pain free way possible? Read on for our top tips.

Clear your most expensive debts first

If you owe money on a number of credit or store cards, clear the most expensive balances first. It you’re unsure what rate of interest you’re being charged for each then check on your last statement.

Paying more off your most expensive debts first will mean less of your monthly repayments are covering interest costs and more is going towards paying down the outstanding balance. This will cost you less in the long run and you’ll be debt free more quickly.

Remember though that you must pay at least the minimum every month off each card but, once you’ve done that, aim to pay more off the most expensive balances.

Will you qualify for a 0% balance transfer offer?

It may be possible to reduce the cost of your debts by consolidating your outstanding credit or store card balances onto a 0% balance transfer card.

The Virgin Credit Card has the longest interest-free period at 16 months, although you will be charged a 2.98% transfer fee.

Other competitive balance transfer cards include the Santander Credit Card, which offers a 15-month interest free period and charges a 3.0% fee, while the MBNA Platinum Plus, BT Credit Card and Nationwide Building Society Gold Card all have 13-month 0% offers on balance transfers and Barclaycard Platinum is interest free until January 2011. The fee on this product is also slightly lower at 2.5% (Nationwide and BT charge 3.0%, while MBNA has a 2.9% transfer fee).

  

There are some other 15-month deals which you may be eligible for depending on which bank you have your current account with. NatWest, Royal Bank of Scotland and HSBC all offer credit cards which are interest-free for 15 months but they are only available to current account customers.

Market leading deals like this will require you to have an excellent credit score so it may be worth obtaining a copy of your credit file before applying for any form of credit as, if you do get declined, this may create more damage to your credit score – especially if you apply for more than one deal. 

Pay more than the minimum

If at all possible, pay more than the minimum off your debt each month.  Research carried out by moneysupermarket.com has revealed some ugly figures which will be a wake-up call to those who cruise along by just paying off the minimum repayments on their cards.

The average spent on credit cards per person over the festive period last year was £376. If this was held on a credit card with an average annual percentage rate of 18.31%, it would take you a staggering nine years and nine months to pay off the debt if you paid just the minimum of 2.5% off each month. On top of this you will end up paying an extra £324.10 in interest. 

If that alone is not enough to make you rethink your repayment habits then look at the impact of increasing your payments to just £20 a month. Based on the average figures above it would take you just 1 year and 10 months to pay off the debt and you would only pay an extra £63.94 in interest, saving you £260.16 in interest and a good eight years compared to if you paid just the minimum.

Take this even further and pay off £50 per month, by doing this you would shave off a whole nine years and £300 in interest compared to paying just the minimum.  You’d be debt free in just nine months and have only paid £24.26 in interest.

Strike a deal with your existing provider

If you’re unlikely to qualify for one of the leading balance transfer offers but have been a bit of a credit card collector in recent years, there may be another option. Call your existing providers and ask if they have any offers for existing customers – if you’ve got a card with nothing on it at the moment start with that one.

Credit card firms regularly have special offers available to existing customers which aren’t advertised and which often you’ll only find out about if you haven’t used the card for a long time or ring up to close your account.  If you’re able to take advantage of such an offer it could reduce the overall cost of your Christmas splurge as you maybe able to transfer your outstanding balances onto that card and benefit from a lower rate of interest.

Don’t spend any more!

It’s an obvious one, but don’t rack up more debt while you’re still clearing existing borrowings. Rein in the spending until you’ve covered the cost of Christmas otherwise you risk being sucked into a spiral of never-ending debt.

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