Page last updated at 10:26 GMT, Wednesday, 16 December 2009

Fergus Muirhead on the debt hangover

Fergus Muirhead
Fergus answers money questions on Reporting Scotland and online

So that's it over for another year and all that remains to remind one of Christmas 2009 is a hangover, a few extra pounds round the middle and a few pounds missing from your wallet - oh and a credit card bill that you expect to drop through the letterbox any day now.

All well and good if you've got the money to pay it. But what should you do if you find yourself short after the festive spend and can't even make the minimum payment due on your credit card - or on any other loan for that matter?

Well, the first thing to do is stay calm.

You should take some comfort from the fact that you are not alone.

January is one of the worst times of the year for people getting behind with credit card and loan repayments.

The worst thing you can do is bury your head in the sand and pretend that the problem will go away - it won't.

And, more importantly, you'll find it much easier to deal with your creditors if you speak to them as soon as you realise you have a problem.

So if you only make one resolution this year make sure that it is to own up as soon as you've done your sums and worked out that you can't pay all of your debts.

The next thing you need to do is to prioritise your debt.

Credit cards
Many people can expect a big credit card bill after Christmas

If you don't pay your mortgage you might eventually lose your house. If you don't pay your credit card bill you're not going to lose anything except the ability to get more credit.

Now I'm not for a minute advocating ignoring your bills, just suggesting that you need to make a list of your debts and work out the consequences of not paying each one. It's not always the best thing to do to pay the creditors that shout the loudest.

Here are some other things that you can do to make sure that you don't face the same problems in January next year:

Ditch the expensive debt

Make 2010 the year that you get sensible with your credit and store cards.

Look for a credit card with 0% interest. Once that interest-free period ends try to switch any balance to another card that offers the same.

Don't use expensive store cards unless you are sure that you can repay the money you borrow straight away.

Work out a sensible budget

Work out how much you need to spend every month on essentials and stick to that budget.

For the next month keep an accurate note of everything you spend. Be honest! This is the starting point for your budget.

Make sure you include the monthly cost of things that you pay annually, such as house or car insurance, with an allowance for holidays.

Once you have added it all up compare it to your income for the month. If your income is greater than your spending it doesn't mean you can go away and forget about it - you might still be able to trim money off your spending every month that you can either put to better use spending on something you enjoy, or you can save it for a rainy day.

Sort out some rainy day savings

Most us get into trouble because we're faced with unexpected expenses and don't have any savings. Try to save a little every month - you can only do this once you've started the budget above - and keep it in a separate account so that if something turns up that you need to spend money on in a hurry you won't have to borrow.

Check out your mortgage rate

If you have had your mortgage for a while it will be worth looking around to see if there is a better rate available.

Lots of lenders will pay your costs for you if you move your mortgage to them.

Start off by asking your existing lender if they have any other deals as this may be an easier option than moving to a completely different lender.

Remember to check to terms of any new deal.

There's no point saving a bit of money now only to find that you're tied in and can't move if your circumstances change.

Bank on the best account

Lots of current accounts pay very little in interest.

You shouldn't use these accounts to save money.

Any cash that you have left at the end of the month should be moved to a savings account with a higher rate of interest.

Although savings rates are low at the moment there are still accounts that are paying a decent rate. You just have to dig a bit deeper to find them. Check out some of the comparison sites like or

You can contact me by e-mail at

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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