Easy ways to make your debts disappear

Helen Monks reveals some simple steps to sort out your finances and get back in the black in the new year

Christmas credit card bills will be hitting doormats throughout the country soon, and while for some this will merely prove the impetus to switch to a more competitive interest rate, for others it will be the start of a very worrying time.

For those looking to either switch their debts to cheaper cards or consolidate their debts this new year, comparison website uSwitch.com warns the impact of the ongoing credit crunch is going to make the best rates all the harder to come by. Indeed, securing new credit at all may prove difficult for all but those with squeaky clean credit files.

Uswitch says around 38 per cent of borrowing applicants were turned down for a credit card last year, and time is of the essence for people looking to take action this year. Wherever your finances lie on the Christmas credit spectrum, there are steps you can take to get your finances in better shape for 2008.

If you need to pay less interest

"If you have built up some debt on credit and store cards, and you are paying interest rates of 20 per cent plus, you could be paying a great deal less on 0 per cent balance-transfer deals," says Julia Harris of Moneyfacts.co.uk.

Be prepared for balance-transfer fees which can be nearly 3 per cent of the debt amount, but switching cards can still prove worth it if you have a large, expensive debt.

Moneyfacts' best buy recommendations include the Mint Mastercard, offering 0 per cent on balance transfers until March 2009, subject to a 2.9 per cent fee. The card charges a rate of 12.9 per cent on purchases.

If you need discipline to pay off your debts

Uswitch.com's Mike Naylor says: "If you want to pay debts off and be left with a more manageable single monthly repayment, then an unsecured personal loan could be the best route to take the advantage being that you have an agreed interest rate and monthly repayment, both of which are fixed for the duration of your loan."

But Naylor says debt consolidation must be done with the right attitude. He points to research suggesting that of those that consolidated their borrowing in 2006, 65 per cent did not close down existing forms of credit and ended up racking up an additional 2,300 of debt, defeating the purpose of consolidation. Other possible pitfalls include falling for expensive loan insurance pushed by providers.

Amongst Moneyfacts' best buys is Sainsbury's Bank's unsecured personal loan, which has a typical APR of 6.5 per cent, meaning 10,000 borrowed over five years would demand monthly repayments of 195.01 without insurance. Opting for the insurance would cost you an extra 58 a month.

If you are turned down for cheaper credit

"All kinds of people who have less than a whiter than white credit history are being turned down for cheaper credit and unsecured personal loans at the moment," says Tim Moss, head of loans at Moneysupermarket.com.

While loans secured on your home attract controversy because you risk losing your property, Moss suggests it may be time some people changed the way they feel about these arrangements: "Because the company has the security of your home, it can offer more competitive interest rates. Yes, you risk losing your home if you don't keep up repayments, but this is the same with your mortgage and can be the same if you default on an unsecured loan and are pursued through the courts."

Mr Moss recommends anyone consolidating debts through a homeowner's loan to opt for as short as manageable repayment term and to ensure they don't end up spending the cash on anything but paying off more expensive debts.

First Plus (0800 052 0202; www.firstplus.co.uk) the Barclays-owned company which has a marketing campaign fronted by Channel 4's Carol Vorderman, offers homeowner loans at a typical APR of 7.9 per cent.

If Christmas has pushed you into extreme debt

If 20 per cent or more of your outgoings is being spent on servicing debt, then debt charity the Consumer Credit Counselling Service suggests you could need independent, professional advice on getting your debts down to more manageable levels.

Among the many solutions for those in extreme debt are bankruptcy and individual voluntary arrangements (IVAs). IVAs are legal contracts between you and your creditors, allowing you to write off a proportion of your debts and to consolidate the remainder into one easy monthly repayment.

But debt counsellors urge caution. James Ketchell of the Consumer Credit Counselling Service says: "There has been some controversy over the way some companies are marketing IVAs. At CCCS we will only suggest an IVA to a client if a counsellor has deemed it the best solution and all our IVAs are arranged in-house and not by a company."

If you are struggling to keep your head above water after Christmas, you need not pay debt management companies a fee for advice, there are plenty of places to turn for free, independent guidance which you should do so sooner rather than later.

Where to go for free debt guidance
* The Consumer Credit Counselling Service has a free national telephone service, 10 regional centres and an online service. It provides counselling on personal budgeting, advice on the wise use of credit, and how to manage achievable debt repayment plans (0800 138 1111; www.cccs.co.uk).
* National Debtline provides self-help advice, packs and fact sheets. It offers expert advice on the full range of debts from rent arrears to congestion charges and can deal with telephone, email and written enquiries. The service can also help callers set up debt management plans (0808 808 4000; www.nationaldebtline.co.uk).
* The Citizens Advice Bureau provides free, confidential and independent advice from over 3,000 locations, including GP surgeries, hospitals, colleges, prisons and courts. Advice is available face-to-face and over the phone. Most bureaux offer home visits and email advice ( www.adviceguide.org.uk) and click on "Find your local CAB").