Debt consolidation tip over credit card debt

Debt consolidation can help save interest if carried out swiftly on credit card balances, research has shown.

A study by Moneysupermarket.com noted that paying off a card over a long period of time means suffering a large interest bill that may be almost as high as the initial amount borrowed.

It calculated that a consumer using a card to borrow £500 to pay for Christmas presents at the average annual purchase rate of 18.12 per cent and repaying the debt at a minimum of just 2.5 per cent each month would take 11 years and eight months to clear it.

And by the time the debt has finally been paid off in 2023 the interest will have added £477 to the bill.

Head of banking at Moneysupermarket.com Kevin Mountford said this was an example of the potential dangers of piling up credit card debt.

He said: "The decision to use a credit card shouldn't be taken lightly and careful budgeting is essential to ensure people can pay off their Christmas debt quickly and within the next twelve months, or as our findings show, they could be left paying for Christmas 2011 for many years to come."

A study by HSBC has suggested many people will still be using cards to spend heavily on this Christmas, despite the gloomy economic climate.

It found the average family will spend £560 on the festivities and 21 per cent will be borrowing to do this.

And the 35-44 age group will rely on plastic the most, with 22 per cent of this demographic seeking to use cards to pay for their seasonal celebrations.

By James Francis