Tips if you're trying to clear debt

Published:
22 September 2011
Topic:
News,Money,Debt

One in four British workers spend a massive 40% or more of their wages repaying unsecured debts such as those held on credit cards and loans, according to new MoneySupermarket research.

And incredibly, close to one in 10 people plough 80% of their salaries into debt repayments each and every month.

In fact, as a nation we're spending a whopping £9 billion a month paying off non-mortgage debts. That's an average of £322 per person.

Tim Moss, head of loans and debt at MoneySupermarket, said: "With the cost of living continuing to rise, consumers are feeling the squeeze more than ever.

"It's therefore worrying to see such a high number of people needing to use so much of their income just to service existing debt."

However, many debt-ridden consumers could slash the amount they have to repay - or the length of time they are caught in the debt trap - simply by changing the way they borrow.

Pay at least the minimum each month...

The first step is to ensure that you are meeting the minimum repayment terms each month by setting up a direct debit payment for at least this amount.

Moss said: "For someone with credit card debt, it is vital that regular monthly payments are maintained, as a late or missing a payment could result in being charged fees or losing any promotional rates.

"Setting up a direct debit helps consumers avoid missing payments and forking out significantly more than expected in interest payments and fees."

... And try to reduce the amount of interest you're being charged

While avoiding charges is crucial it is also hugely important to pay the lowest possible interest rate on the debts they hold.

Consolidating debts on to a low-rate credit card, loan or overdraft will not only reduce the amount you pay overall, it will also help you get a handle on the amount you owe and monitor your progress towards becoming debt free.

Moss added: "Interest-free balance transfer cards work well for those transferring smaller amounts that they are confident they can pay back the balance within the promotional period.

"Personal loans are also a good alternative as they offer a fixed monthly repayment amount over a fixed term."

Here are some of the best options.

I am interested in switching my debts to a new credit card. What are the options?

There are some great 0% balance transfer cards available at the moment.

The Barclaycard Platinum Credit Card with Extended Balance Transfer, for example, offers 22 months at 0% on balance transfers, subject to a 2.9% fee (as long as you switch your debts within the first 60 days). They're also offering a £50 gift certificate when you transfer a balance of £2000 or more.

Meanwhile, Halifax's Balance Transfer Credit Card offers the same period - 22 months - interest free on debts of up to £3,000, with a fee of 3.5%.

You need to ensure that you can clear your debts in full, or switch again if necessary, before the introductory offers come to an end though. Once the 0% offer finishes you'll be charged the standard rate of interest, called the representative APR, which is 17.5% (variable) with Barclaycard and 17.95% (variable) on the Halifax card.

It is also vital that you are disciplined enough to avoid adding to your woes by spending on the cards while you are taking advantage of the 0% deals.

Finally, as with most best buy credit cards, these deals are only open to borrowers with good credit scores.

If you have any doubts about being turned down - which will further damage your credit file - it is therefore a good idea to use the MoneySupermarket Smart Search tool before applying.

You can find it, plus more details on the deals mentioned above, by clicking here.

I would prefer fixed payments. Where can I find the best loans?

If you owe a large amount, or would prefer the security of fixed payments and a fixed repayment term, to prevent you getting further into debt using a credit card, then low-rate personal loans can prove a better choice.

And the good news is that there are lots of competitive options available at the moment.

Both Alliance & Leicester is currently offering a loan with a representative APR of 6.3% for successful applicants wanting to borrow between £7,500 and £14,995, over five years.

One again, however, this deal is only available to those with good credit scores.

Visit the MoneySupermarket loans channel for more deals.

What about current account overdrafts?

Another option is to use your current account overdraft to pay off other debts.

Charges can be high, though, so this is only a sensible move if you have a competitive overdraft rate. And make sure you don't exceed your approved overdraft limit as the cost will be even higher.

The current account offering the best deal on overdrafts at the moment is Santander's Preferred Current Account.

It charges 0% on authorised overdrafts up to £2,500 for the first 12 months as long as you pay at least £1,000 a month into the account.

When the free overdraft period ends you'll be charged 50p per day (capped at £10 per month).

If you cannot manage that, the bank's Everyday Current Account also offers new customers four months at 0% on their authorised overdrafts, after which charges are 50p per day (capped at £10 per month).

With both accounts, the size of the overdraft facility you are granted will depend on your individual circumstances.

Take a look at MoneySupermarket.com's current account channel for more information.

I cannot keep up with my repayments. What should I do?

If you are seriously struggling to keep pace with even the minimum repayments required by your creditors, then it may well be too late to consolidate on to the deals described above - especially as most of them are reserved for those with good credit scores.

The best move is therefore a good idea to contact a debt advisory service. You can get free help from organizations such as the Consumer Credit Counselling Service (CCCS) and Citizens' Advice Bureau. However, demand for these services is high at the moment so you may have to wait a couple of months.

If you need help more urgently, the fee-charging firms are worth considering. Such firms often get bad press because there are some unscrupulous groups operating in this arena. However, those listed on MoneySupermarket's debt channel are all accredited by DEMSA which is approved by the Office of Fair Trading.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We're free, independent and compare all UK loans, as well as offering exclusive deals you can't get anywhere else.

Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.

Related Links

Rate This Article

Click on a star to rate this article.

10 ratings

Email a Friend

Let a friend know about this news item with an email containing a link to this page, and a customised message.

 *
 *
 *
 *

 

 *

This helps us prevent automated programs from using and slowing down our services.