Ben Birchall/PA

January can feel like the longest month of the year when festive spending hangover kicks in amid the arrival of credit card bills and a quickly diminishing overdraft.

But take a little time to rearrange your finances and you could give your bank balance a break and free up money to clear those lingering debts.


Debt is not an ideal start to the New Year, yet one in five Brits welcomed January with whopping credit card bills averaging £5,000, according to figures from uSwitch.com, with a further one in five still paying off debts from Christmas 2011.

While you may be planning to reign in the spending and avoid a repeat performance next year, how do you turn your finances around right now?

The key is to rearrange your debts by shifting them onto cheaper product deals with lower rates of interest. This will free up extra cash to further chip away at the debts or direct towards essential financial commitments that may be suffering as a result of a Christmas or January sales splurge.

"Consolidating your debts sounds complicated but it's not," explains Graham Pilkington at Nationwide.

"Rather than paying more for your shopping splurge by struggling to pay off store cards, and credit cards which charge a high rate of interest you are probably going to be in a better position by doing a simple credit card balance transfer or taking out a low rate personal loan to pay them all off in one go so you can benefit from a lower interest rate."

Balance transfer
The high rate of interest on many credit cards means that every purchase becomes more expensive if you fail to clear the debt within the specified period. As the purchases accrue and interest racks up, the debt grows and becomes increasingly tricky to clear – which means it can take months or even years to pay off completely.

The solution is to shift your debt to a card with a lower rate of interest to get some breathing space. It is a common solution yet often overlooked - more than half of UK credit card holders say they would never consider doing a balance transfer on their credit cards, according to new research by Nationwide.

Cards offering 0% on balance transfers are the Holy Grail of the credit card world as it will stop your debt from growing further during the 0% period, in return for small balance transfer fee of around 3%.

Paul Carvell, Nationwide's head of credit cards, said: "The New Year can often bring with it the stress of how to manage debt racked up through Christmas-related expenditure, particularly on the credit card. By taking advantage of a 0% balance transfer offer, people can relieve some of that pressure, giving them the opportunity to reduce those balances at a manageable rate.

Current top offerings from Nationwide include its regular credit card and Select credit (reserved for FlexAccount customers) – which both offer 0% on balance transfers for 20 months, with a discounted transfer fee of 1.55% (normally 3.1%) for customers that apply through its website. After the interest-free period, the APR reverts to 15.9% and 12.9% on the regular and Select credit cards respectively.

Personal loan
Juggling several debts can be particularly tricky as different payments are likely to be due throughout the month. You could also be paying a hefty chunk in interest if for example, you have a credit card, store card and overdraft all vying for a portion of your income each month.

Taking out another debt may seem counter productive, but the goal of personal consolidation loans is to pay off all your existing debts so you just have one monthly payment – which is easier and often cheaper to repay.

Say for example, you have a debts of £7,500 racking up 19.3% interest (average credit card rate) with monthly repayments totalling £144.11. It will take around six years to repay and you'll accrue a whopping £4,208 in interest.

This could be slashed by taking a non-secured personal loan. Nationwide's current offering for example, has an APR of 5.9%, which if monthly repayments are kept the same, with cut the interest to £1,149 and clear the debt in five years - a saving of £3,062.