How to get out of debt in the new year

By Emma Lunn and Michael Lloyd

Did you wake up on 1 January in debt? If extra spending during the festive season added to your existing credit card balances, it's time to face the music.

UK consumers had an average of £1.5 billion outstanding in November 2016, according to figures published by the Bank of England. And more than 5.5 million Britons faced financial hardship in January 2016 because of their Christmas spending, according to National Debtline.

debt-free

Try these tips for getting rid of your debt for good this year.

1. Stop spending.
It sounds simple, but the most effective way to tackle your debt is to stop adding to it.

For the month of January at least, try not to use your credit card or any other form of borrowing. Limit your spending only to things you need. Take a set amount of money out of the cash machine each week to live on, and leave your cards at home.

"Create a monthly budget and then stick to it," Jane Clack, money advice consultant at debt charity PayPlan, said in response to emailed questions. "Write down everything you spend [each week]. Once you see what you're spending, you can work out what you can cut out or cut down on."

If you need help creating a budget you can stick to, debt charities such as PayPlan, StepChange and Citizens Advice offer free tools that can help you.

2. Consider a balance transfer.
If your debt is on high-interest credit cards, consider switching to a balance transfer card with a 0% interest period. While the interest-free period is in effect, all repayments you make will go toward the capital amount instead of interest.

There are plenty of extra-long 0% balance transfer deals available to borrowers with good credit -- some lasting more than three years.

You may also save money by switching current accounts if your festive spending pushed you into the red. Nationwide's FlexDirect Account offers a fee-free overdraft of up to £1,000 for 12 months, while First Direct's 1st Account provides a permanent £250 fee-free overdraft. Some banks, such as First Direct and Halifax, even offer monetary incentives to move your account.

3. Try a debt consolidation loan.
A balance transfer is one method of consolidation, but not the only one. For instance, you may want to consider taking out a fixed-rate loan.

"A debt consolidation loan can not only potentially reduce people's outgoings, but reduce the total amount of interest they pay and help clear their debt sooner," Paul Wootton, Nationwide's former head of personal loans, said in a news release.

However, proceed with caution: Clack said while the interest rate on your new loan may be lower than the interest rates on your cards or other loans, you may end up paying back the same or more in the end because the repayment period may be longer.

"If you do consolidate your debts, remember the credit cards are not there to be spent on again," she said. "Often people go down the same route and accumulate more debts on their cards."

4. Sell stuff.
January is a good time to clear out the clutter in your home. Consider selling unwanted goods and putting the profit toward debt repayments.

You may be able to hold a yard sale, or simply sell your items online. If you're getting rid of gently used clothes, toys or baby items, some shops may buy them from you. Likewise, you may be able to sell books, CDs, DVDs and games to shops on the street or online.

In addition to being able to put your profits toward debt, you may find that decluttering helps you stay more organised with your finances, too.

5. Save on mortgage costs.
If you have a mortgage, the new year is a good time to search for a better deal.

"Your mortgage is likely to be your biggest outgoing, so it is important that you don't pay more than absolutely necessary," says Mark Harris, chief executive of mortgage broker SPF Private Clients. "Compare your mortgage with the rest of the market, using an independent mortgage broker if you wish to save time and hassle."

If you find a better deal, "instead of spending any savings you make by remortgaging, put the money toward paying off other debts more quickly, or overpay on your mortgage to reduce the interest you pay" over the life of the loan, Harris says.

6. Make your spending work for you.
If there are things you need to buy in the new year, use a cashback site to earn money on your purchases, and use the extra cash to pay off debts.

Click through to the retailer or product provider via the special links listed on cashback sites such as Quidco or TopCashback. A percentage of what you spend will come back to you in the form of a cashback rebate.

Then, use that extra cash to accelerate your debt payments.

"It's quite common for cashback users to earn hundreds of pounds a year, even if it's only by buying things they absolutely need and would have bought anyway, which can then be thrown toward paying off lingering debts," says Natasha Rachel Smith, consumer affairs expert at TopCashback.

7. Seek professional advice.
If you're unable to cope with your debts, it may be time to speak with a debt adviser.

"If you can't afford the minimum repayments to your cards, then you should seek some free debt advice," Clack said. "You can then receive advice tailored to your particular circumstances."

See related: Balance transfers, used wisely, can help manage debt, 5 realistic financial resolutions; Extreme, creative ways to clear debt

Updated: 13 January 2017