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Zero interest cards can cut post-Christmas debt Credit card tips

If you are struggling with a mountain of post-Christmas debt, transferring your balance to a zero interest credit card or cheap loan can be a way of reducing your costs.

Recent research indicates that more than one in six people may currently be looking to consolidate their debts or take out new loans or credit cards.

Over 40% plan to transfer their existing debt onto a 0% balance transfer card, while one-third will take out a loan according to Moneysupermarket.com.

But the best offers are usually not open to the people who need them most.

Only those with squeaky clean credit ratings are likely to be successful, and other borrowers will need to look at alternative options if their debts are getting on top of them.

The advantage of transferring to a low interest rate credit card is that it can save you hundreds of pounds which can be used to clear debts quicker.

Nationwide Building Society, which this week announced a 20-month interest free balance transfer deal on its credit card, calculates that holders could save over £340 by moving £1000 from another card with a 24.9% APR, even including a typical balance transfer fee of 3.1%.

There would still be a saving of £172 if your current card only charges 12.9% APR.

But Nationwide is now offering an attractive half-price fee of only 1.55%.

Lloyds TSB has a similar deal, with its Platinum card offering a 21-month 0% deal alongside a 50% refund on its 3% fee.

Other zero interest balance transfer deals of up to 24 months are offered by Barclaycard Platinum Visa, while MBNA and NatWest are offering 23-month deals, and Tesco Clubcard credit card offers 22 months interest free when a balance is transferred. Transfer fees of between 2.9% and 3.2% will be charged.

Also this week came the first signs of a cheap loans battle, with Clydesdale Bank launching a market-leading 5.1% personal loan rate for borrowings between £7500 and £15,000.

Credit providers say that applicants for these deals are considered on merit.

Mike Pitcher, spokesman for Nationwide, said: "We decide on a case by case basis."

But Michael Ossei, personal finance expert at uSwitch.com, says: "Because balance transfer deals are so sought after, lenders can be choosy. You're more likely to qualify if you have a clean credit rating and a minimum household income of £20,000."

The same applies with cheap bank loans. If you do have a good credit rating, a zero interest balance transfer or cheap loan is worth considering so you pay off your Christmas debts faster.

Yet more than half of UK credit card holders say they would never consider such a transfer, according to recent research by Nationwide. The society believes many people are missing the opportunity to reduce the cost of their debts.

If your credit rating is not up to scratch, there may be ways you can improve it, such as cancelling any unused cards.

If you have recently moved house put yourself on the electoral register as fast as possible. It is also a good idea to check your credit files for mistakes at the three credit reference agencies – Experian, Equifax and Call Credit – as information can vary. Statutory credit reports can be purchased for £2.

However, if you have missed credit repayments in the recent past, finding another lender to take you on will be difficult.

In this situation if your existing credit card debt is getting too much for you, Mr Ossei advises: "The best thing is to approach your credit card provider, explain the situation and ask for a payment deal. Tell them what you can afford.

"The company will look at your income and expenditure and may agree a reduction for say the next six months. The excess will be added to your debt but it can help restore your credit rating and give you more options in the future."

Another trap borrowers fall into is taking out multiple cards and loans that overwhelm them at this time of year. To help people in this situation, the Glasgow Credit Union has developed a consolidation loan which is available to anyone living or working in the 'G' postcode.

June Walker, chief executive of GCU, explains: "If you are committed to reducing your monthly outgoings, consolidating existing balances into one easy to manage loan can be an ideal solution to regaining control of your finances."

The Glasgow Credit Union's loans are for fixed terms of between three and six years, with an APR of 14.9%.

Although borrowers' credit ratings are taken into account, unlike other financial organisations all applications are individually assessed and a decision made by a member of the credit union team, not a computer scorecard.

This means that people with previously impaired credit are not automatically excluded and where they demonstrate a willingness to rehabilitate their credit through restructuring their debt the credit union will often be able to help them out.

However, if you feel you really need help working out how to manage your debts, seek free advice as soon as possible through Money Advice Scotland (its website will show you where to find the agency closest to you is located) or call the National Debtline on 0808 808 4000.

l If you are looking to switch to a 0% deal, ensure that you are able to afford to clear the debt within the period.

l If you cannot afford that, consider switching to a low rate credit card such as Sainsbury's at 6.9%.

l If the credit limit that you receive on a new card does not cover the entire balance you want to switch, transfer as much as you can, and focus on paying down the old card while maintaining minimum repayments on the new one.

l If you have more than one credit card, pay off debt at the highest interest rate first

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