Tim Moss and Steve Willey, Friday February 29, 2008

UK consumers racked up their second highest-ever credit card bill in the run-up to Christmas - a whopping £32.3bn. Now that money has to be paid back - find out how to clear your card debts and avoid a financial hangover

The credit crunch and fears of possible house price falls didn't stop us spending this Christmas. New figures from payments body APACS show that the UK's 31.5million credit card holders spent a staggering £32.3bn in the last three months of 2007 - the second-highest quarterly sum on record.

Experts predicted that consumers would rein in their spending over the Christmas period as the impact of last year's interest rate hikes and rising food and energy bills hit our purchasing power. Yet UK retailers reported strong festive trading figures - and there are worrying signs that rather than cutting back, an increasing number of people are relying on credit in order to make ends meet.

A new survey from price comparison website Money Expert reveals that one in three consumers who owe money are "deeply concerned" about their ability to repay their debts - and that some two million consumers have seen their credit card debts rise by 20% or more since the turn of the year.

Taking control
There is action you can take control your card debts. The two main options open to consumers are to take advantage of a 0% credit card offer or consolidate various debts into a personal loan with one lower rate of interest. The route you decide to take will depend on the size of the debt, how long you think it will take to repay and your own self-discipline.

An interest-free credit card is the cheaper of the two options - but you'll have to move fast to secure a good deal. This time last year there were around 200 credit cards offering 0% balance-transfer deals, according to research from finance website fool.co.uk. Now there are less than 100 - and only nine that offer 0% for 12 months or more.

You'll be charged a transfer fee of up to 3% of the balance, but that should still work out cheaper than going for a personal loan - as long as you can clear the debt before the offer ends, or are able to move it over to another 0% card once the interest-free period expires.

Among the leading credit card deals currently available is the HSBC card, which offers 0% for 12 months on purchases and charges just 2.9% for two years on balances transferred within 30 days of opening the account.

Be warned that this option takes some self-discipline - you should work out how much you will have to pay each month in order to clear your balance by the end of the interest-free period and then set up a direct debit for that amount. You will also have to resist the temptation to spend any more on your card.

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Loan solutions
If you don't feel confident moving between credit card deals, a personal loan may be a better option. A loan will also be more suitable if you owe a large amount that will take years, rather than months to repay.

Many providers have increased their loan rates in recent months as a result of the credit crisis, although the best deals start from about 6.6%. However, the rate you will be offered will depend on your credit score.

Moneyback bank, which is owned by Alliance & Leicester, has the best rate currently available at 6.7%. However, these loans are more risky for lenders because they are not secured on your home making it harder for them to reclaim the money if you default on repayments. Therefore, you may struggle to get an unsecured loan if you have a poor credit rating.

Once you have decided what course of action you are going to take to repay your debts, it's important to ensure that you do not run into similar problems again in the future. It is therefore also worth taking a careful look at all your monthly outgoings and work out where you can cut back your spending.

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