You can’t avoid tax altogether, but be smart and you can make some significant savings on your yearly tax bill.

First, you should ensure that you’re not paying too much income tax. Many of us have the wrong tax code. This affects your personal allowance and therefore how much tax you are paying. Go to the HM Revenue and Customs site website to check if you are being coded correctly.

And if you’ve earned less than your allowance in a tax year, but still been taxed (this happens a lot), you’re due a rebate. Again head to the HM Revenue and Customs site.

Interest on savings is taxed at 30%. But if you aren’t a tax payer you shouldn’t be paying this (this applies to children and the retired mainly). Get an R85 FORM from your bank or building society to claim your interest tax free.

And there are tax free savings vehicles. Open an ISA account and you can put £3000 a year away in cash, plus £4000 in the stock market … or just put £7000 into shares. It’s madness NOT to use at least a cash ISA if you are saving money elsewhere.

Offset mortgages, such as the Virgin One account mean that rather than putting your money in a savings account (earning you interest on which you have to pay tax) you pay off a chunk of your mortgage instead, THEREBY SAVING INTEREST YOU WOULD HAVE PAID … and that’s tax free. There’s also the long-term benefit of course – that you’ll pay off your mortgage more quickly.

You may have used your entire tax free allowance … but has your other half? If you’re a higher rate taxpayer but your partner isn’t working, then giving your money to them to invest (it must be in their name) could save you a packet. Of course you have to be able to trust them to give the money back!

Pensions are a great way of grabbing a tax bonus back from the Chancellor. They give you the tax back, so basic rate taxpayers only pay £78 for every £100 invested in their pension. Higher rates taxpayers get an even better deal, paying just £60 for every £100 that goes into the pot.

Be a charitable giver using Gift Aid, and the charity gets an extra £2.80 for every £10 you donate. And higher rate taxpayers can claim back £2.30 tax relief too.

Make a will – it might not seem important right now, but inheritance tax kicks in at just £300,000, less than the value of many of our homes. Leaving a rock solid will can avoid complications later.

There’s no need to worry about shopping online, if you take a few simple precautions.

CHECK you’re dealing with a reputable company.

Only buy over a secure connection. Look for the padlock symbol at the bottom of the screen.

The url should begin https rather than the normal http, denoting a secure site.

Look for Trustmark validation, such as ISIS, Trust UK and Hallmark.

Look for the company’s customer service number on the site (0800 rather than a mobile number obviously).

And buy with that credit card – then you’re covered for sums of more than £100 if you are the victim of fraud.

Buying with a credit card online makes sense anyway, as it gives you extra legal protection.

Make it a cashback card (and ensure you pay off your balance every month of course) and you can get a significant refund on your spending.

Current good options include the American Express Platinum Card and the Capital One Cashback Mastercard.

There’s a remarkable amount of free stuff to be had online, by companies aiming to promote their products.

Free phone sim cards, discount vouchers off holidays at Center Parcs, free food products … even free flights.

Check out sites including www.bobsfreestuffforum.co.uk and www.savings2behad.com .

Price comparison sites in other words. Unless you are prepared to spend days trawling round the shops looking for the best deal, there really is NO better way to ensure you’re getting the lowest price.

The biggest of the shopbots are pricerunner, shopping.com and kelkoo. www.MySupermarket.co.uk even lets you compare the price of a basket of groceries at Asda, Tesco, Sainsbury’s and the rest.

They’re a great idea but be aware that these sites DO make money by directing surfers to partner companies … and search results MAY be ranked to favour certain companies.

So compare prices on two or more sites. And make sure you’ve factored in the delivery price.

This week, John Rennie advises you on the financial products you should avoid like the plague. And he tells you how to slash the interest you pay on your loans – and make your life simpler – by wrapping all your debt up into one bundle, with just one monthly repayment. To contact Wallet Watcher simply email walletwatcher@btpodshow.com .

• Office of Fair Trading (OFT)
• Fool.co.uk on loan consolidation

This weeks episode of Wallet Watcher is brought to you with GoDaddy and offers you great discounts on hosting and domain names. Use the Wallet Watcher godaddy promotion codes to save you money – wallet1 gets you 10% off domain name purchases and wallet2 gets you 20% off orders over £25. Some restrictions may apply, see the GoDaddy web site for more details.

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Interesting fact: the three BIGGEST reasons for taking out a personal loan are

1. To buy a car
2. For home improvements
3. To pay off existing debts – such as loans.

The third is called debt consolidation and it can be a very bad or a very good idea.

Many people decide to consolidate because their finances are not just in a mess, but are scattered all over the place.

They’ve a credit card debt, overdraft, a car loan, and maybe another personal loan.

They’re probably paying too much interest on some of these, and the plethora of payments makes it hard to keep on top of things.

It also increases the risk of missing payments, so incurring penalties.

What better than to take out a new loan and pay all the old ones off?

WELL IT DOES have the virtue of forcing the badly organised to start adding up all their outgoings.

But there are some important things to understand here. Obviously you want to ensure that your new loan is at a lower rate of interest than your old.

Understand the difference between secured and unsecured loans.

A secured loan will almost certainly have lower interest, can be over a longer period and you can borrow much more (up to £100,000 or so).

But it’s likely to be secured against your house. The phrase ‘Your home is at risk if you fail to keep up with repayments’ can start to sound very scary.

If you MUST borrow against your house, consider extending your mortgage instead.

You’re dealing with your existing lender, you’re not giving another party a claim on your property and you may even get a lower rate of interest.

Unsecured loans are far safer, though you WILL pay more. Read the small print.

Are there penalties if you want to pay the loan off early?

Do you know the difference between the interest rate and the APR? The latter is the actual cost of the loan and is invariably higher than the simple headline rate of interest.

A word of warning. Go online and you will find hundreds of websites offering to ‘consolidate your credit’ into one tidy bundle.

They’ll typically compare your current repayments with your repayments should you refinance with them.

But the monthly repayment figure is MEANINGLESS Unless they mention the interest rate, the term of the loan and how much of the capital you’re paying off each month – it’s no good slicing your repayments in half if your debt keeps on growing.

Look at all the figures. Grasp the difference between capital (or principal as it’s called in the US) and interest.

Let’s take an extreme example – though it’s no worse than some of the loans people take out.

I have a parcel of debts, totalling £1000 and my repayments come to £75 a month.

So I borrow £1000 at 20% per annum, and I have to repay £1200 at the end of the year. Each month I have to pay £15 to the loan company.

At the end of the year I’ve paid £180 … and my debt stands at £1020, because I’m never eating into the capital.

You CAN cut your repayments to make monthly budgeting more manageable but it ALWAYS means you pay more in the long run – and at some point you HAVE to repay your debts.

Which brings us to the BIG one.

You cleared all your debts with your new loan and now you have a clean slate. But have you changed your spending habits?

After all, the reason you GOT in debt is because you weren’t too clever at managing your money.

Change the way you see money, or you’re just going to start running up debt again … and you’ll end up deeper than before.

Debt consolidation is a good idea if it’s twinned with some financial discipline.

Airport travel insurance is a case where last minute booking definitely doesn’t save you money.

You get to the airport and realise you’re not covered, and it’s ONLY £25 for single trip insurance.

Not so cheap when you realise you could have bought online and got a YEAR’S cover for £75.

I spoke recently about getting O% credit by card switching.

There are interest-free ways to borrow cash, yet people happily sign up for charge cards from the big stores, with rates approaching 30% a year.

They typically slap on big monthly charges for late payments too (£15 isn’t unusual).

They’re little better than theft, so if you’ve got one of the cards, cut it up, and pay off the balance.

You’re in an electrical store having just splashed out on a 32inch flatscreen TV, fridge or washing machine.

The salesman raises the horrible spectre of your shiny new buy breaking down.

Why not take out an extended warranty for extra peace of mind.

Stop! A recent survey by the Office of Fair Trading OFT found the average washing machine repair costs around £55. So a tumble dryer would have to break down three times for you to turn a profit on the average five-year extended warranty costing £150.

Extended warranties are almost ALWAYS a rip off.