If you are nursing a financial hangover after Christmas then you are not alone. There are plenty of people who gave in to temptation over the festive period and spent more than they should have, using a variety of cards, loans and bank overdrafts.
Many people also browse the holiday brochures this time of year to plan the next family break, or they might be looking to buy a new car.
For many, a personal loan early in the New Year is an appealing prospect, whether it is to consolidate debts under one roof or fund a big purchase.
It can also be a good time of the year to take out a personal loan because, as with the January sales in the shops, there can be some cut-price deals available on loans, too. MoneyExpert.com can help you find the best deal.
Addressing multiple debts
It is very easy to let your finances get out of control and let multiple debts spiral into an administrative nightmare. Only around one in two people expect to clear their Christmas debt by the end of January, according to a survey by Sainsbury’s Bank.
Many of those who cannot will take out personal loans. But now it is a New Year and that should mean a new start. The most efficient way of dealing with debt is to bring it all under one loan with the lowest rate of interest.
Money that you would have used just to pay interest can therefore be used to reduce the overall debt.
The checklist for consolidating debts
The key to consolidating debts is to ensure the rate of interest and the terms of your new loan are lower to those you were paying on each of your various debts.
If this is not the case, then cut those debts with the highest rate of interest, which are most likely to be your credit cards or store cards. Also take into account any penalty fees payable for clearing debt early.
Finding the best rate
The Bank of England delivered a shock when it raised interest rates by 0.25 per cent early in January. But do not be deterred – there are still some good loan rates out there.
Many of the big lenders are offering cut-price rates to compete for the extra business out there around this time of the year. A look at our best-buy tables to find the best deal.
Don’t waste time chasing loans you won’t get
Lenders advertise their rates but this does not mean everyone will qualify. If you have a bad credit history, then your chances of securing a loan with a low rate will be significantly reduced.
By clicking on our credit profiling tool you can find the lenders most likely to offer you a loan. Getting rejected by lenders will reduce your chances of being offered a loan elsewhere.
Go for the short term
You want to be repaying your debt for as short a time as possible, while remaining in your comfort zone. So work out the repayments and go for as short a term as possible.
If you are using your personal loan to consolidate debts, make sure you use the proceeds to clear those debts straight away – you do not want to be paying interest on them any longer than necessary.
The biggest lesson
Personal loans can be a useful tool to help your cashflow and help you buy what you want. But just because you might have put your cashflow on an even keel the loan should not be an excuse to go on a spending spree and run up more debt.