Take steps to stave off a financial hangover

Unless all your festive expenditure was by debit card to a current account in healthy credit or by cash where no borrowing was involved, there may be a substantial amount to pay.

The starting point is a credit card. Check the authorised limit (remembering that a fee is incurred if that limit is breached) and the amount already debited.

If you are unable to pay the full amount by the due date or would like an interest-free credit period, apply now for a card with a nil rate for transfers.

A zero interest rate is offered on transfers by Virgin for 16 months and by Santander (the new name for Abbey and Bradford & Bingley) for 15 months. Both offer MasterCard, as does HSBC and NatWest for 15 months but the applicant must hold a current account or already be a customer respectively.

If Visa is preferred, MBNA has a deal, offering zero interest on transfers for 13 months.

Check how the interest-free offer is applied by the card provider. Is it initially to transfers or new purchases and what limits are imposed?

If there is a plan in place as to how to repay the balance on an existing credit card – perhaps a large bonus or commission is expected this month – an alternative idea is to start a new card for 2010 purchases where there is a zero interest period.

Tesco offers just such an attractive idea with MasterCard at no interest rate for 12 months, followed by Marks & Spencer Money and Sainsbury's Finance, both for 10 months.

If in the heady pre-Christmas days, a store card was taken out which is going to start charging around 30 per cent APR on any balance not repaid in full, take urgent action. Pay it off immediately or transfer the balance to a credit card with a nil or lower interest rate.

The Creation account cards have the worst deal of any store plastic: The highest interest rate at 30.9 per cent APR and shortest interest-free period at 51 days. Many retailers offer it including Allders, Carphone Warehouse, Dolcis, Ernest Jones, HMV, JJB Sports and La Senza.

An overdraft is the second stage to consider. Make sure it is authorised as banks can impose not only fixed fees for unauthorised but also penal interest rates. In one well-publicised case, a student who went one penny over her 500 overdraft limit had 48 bank charges imposed. This was 20 administrative fee and 28 unauthorised overdraft fee.

With an authorised arrangement, there may be a usage fee, such as up to 5 monthly with Alliance & Leicester, 1 daily with Halifax (2 daily over 2,500) and 7 monthly with Northern Rock.

The interest charge on arranged borrowings is far lower than unauthorised. Typical rates are 19.3 per cent (Barclays), 9.9 per cent (Citibank), 19.9 per cent (HSBC), 19.3 per cent (Lloyds TSB) and 18.85 per cent (Yorkshire Bank), all EAR (Effective Annual Rate).

However, if unauthorised, the rates can be far steeper, such as 29.8 per cent with Citibank and 29.9 per cent at Yorkshire Bank, both EAR.

Personal loans provide a third source to reduce borrowings. There is still the convenience of doorstop collections but the rates are sky-high. Provident Financial will lend 50-500 for a new borrower and up to 2,500 for an existing one.

On a 300 cash loan, Provident Financial would typically charge 189.2 per cent APR. Repayments of 9 weekly would mean 513 added to the 300 advanced. On the plus side, the firm says there are no hidden charges or late payment fees.

"Logbook loans" are to be outlawed shortly. These are high interest loans, charged at up to 600 per cent, which are secured on cars and other property. The sharks making such loans are amazingly able to seize goods belonging to the borrowers without a court order.

Around 40,000 people take out such a loan annually. It is a way of raising a sum like 5,000 at short notice. The sharks target those with county court judgments or poor credit history, who should instead be asking credit unions for low interest loans.

"Bill-of-sale" loans, as they are correctly termed, were legalised in 1878, when Disraeli was Prime Minister for the second time. If secured on a car, the lender will hold the car registration document as collateral. Quite apart from the amazingly high interest rates, the terms can be confusing and collection practices dubious.

The Citizens Advice Bureaux warn that, unlike other forms of lending, there is no consumer protection with this type of loan.

Instead it is possible to obtain personal loans at 8.8 per cent (Sainsbury's Finance) or 8.9 per cent (Alliance & Leicester), both APR. This is based on borrowing 5,000 for one year. Major banks would typically charge 11 per cent to 13 per cent.

For a comparison of loan rates, consult the website

moneysupermarket.com. For the same amount, it is still possible to pay highly as it quotes 86.5 per cent APR with Real Personal Finance.

Reducing savings, particularly from a poorly-performing deposit account, would be far more sensible than taking on debt at a higher interest rate. Quite a number of accounts are advertised at enticing rates and, once the money has flowed in, the provider drops the rate.

The most recent blatant example is Manchester Building Society. It offered the top ISA rate for cash deposits – both new and transfers in from other providers – but locked customers into a minimum 35-day notice period. Understandably the cash flowed in.

Then Manchester for its inappropriately named "Premier" ISA 35 account announced the rate would fall to 2.51 per cent AER even though there has been no change in Bank rate. The time period from receipt of information to implementing the new lower rate was under 35 days.

There are many other deposit accounts, not only those where the tax is sheltered within an Individual Savings Account, where providers have cut rates.

Closing such accounts and using some of the money to pay off Christmas bills would not only be a good use but the balance could be placed in a higher- rated account.

Compare rates regularly through Moneyfacts (0845 1689 600).

Collective funds (like unit trusts and open-ended investment companies) should also be reviewed. Not all can perform as well as Close Special Situations which returned over 240 per cent in 2009, according to Morningstar analysis.

This fund, tipped here last year, specialises in UK smaller companies. However, there have also been laggards which need clearing out. Aviva's Investors Asia Pacific Property actually lost savers 26 per cent last year. Perhaps the company was too heavily focused on changing its name from Norwich Union at incredible expense.

Even a "cautious managed" fund can lose money with poor stock pickers: MFM Tait Walker's fund lost 15 per cent whilst Legal & General's Japanese fund lost 12 per cent. By comparison, Neptune – a relatively small but highly successful manager – saw its Russia and Greater Russia fund jump over 110 per cent and JP Morgan's New Europe grow by 100 per cent last year.