How to clear your debts

Most of us end up over-spending at Christmas, but it’s worth working out how you’re going to pay off what you owe now rather than worrying about it well into next year.

Daunting as it may be to tackle your debts, the longer you leave it, the more of a financial mess you are likely to end up in. Here, we explain how you can clear them as quickly and painlessly as possible.

Do your sums

Most of the problems caused by debts stem from not knowing exactly what you owe, which leads to borrowing more and hoping the problem will clear up on its own.

Start by sitting down and going through your credit card statements and calculate what you need to pay back.

If you are juggling several different debts, start by prioritising them. Don’t be tempted to pay the bill which contains the most red ink - it may not necessarily be the most important. Your top priority should be to keep a roof over your head, so mortgage payments must be dealt with before any other bills.

Try always to keep up the minimum repayments on all your debts, as if you fail to do this you could damage your credit score, making it much harder for you to borrow money in future.

Next, you need to work out how much you can afford to spend on clearing debts each month. Scrutinise your bank statements to see where you might be able to make savings, and then write and stick to a monthly budget. If you can manage your money better and stick within your means you won’t end up adding to your debts and will be able to use any free cash you have to pay down what you owe more quickly.

Use credit cards to your advantage

If you have run up debts on credit cards which are charging you expensive rates of interest, you should consider moving your balances over to a card which charges 0% on balance transfers for an extended period.

For example, Barclaycard has just extended the interest-free offer on its Platinum balance transfer card to a market-leading 17 months. New customers applying for the Barclaycard Platinum balance transfer credit card through will currently receive a refund of £20 on the 2.9% fee charged to move a balance from an existing credit card.

There are plenty of other great deals currently available. Among the best current deals are the MBNA Balance Transfer card, the Virgin credit card and the NatWest Platinum cards. All of these offer 0% on balance transfers for 16 months. MBNA charges a balance transfer fee of 2.88%, while Virgin charges 2.89%, Barclaycard and NatWest charge 2.9%.

After the introductory periods are over Barclaycard Platinum balance transfer cardholders will pay a typical annual percentage rate (APR) of 16.9%, while MBNA, Virgin and NatWest charge typical APRs of 16.7%, 16.8% and 16.9% respectively. It is essential to try to clear your debts within the interest-free period and then cut up the card so you aren’t tempted to use it again.

Low-cost loans

One way to make debts more manageable is to consolidate existing debts such as expensive credit cards, store card and overdrafts, into a low cost personal loan. Remember that if you go for a loan which is secured against your property, and you have problems making repayments, then your property could be at risk.


It’s also worth bearing in mind that you pay more interest the less you borrow, so a loan can be a particularly good option if you need to clear sizeable debts. Current best buys on a £10,000 loan over five years include a exclusive from Nationwide at 7.6% (7.5% if you’re an existing Flexaccount customer) or the new Tesco personal loan at 7.6%.

At that rate, monthly repayments would be just under £200.

Other options

Another alternative is extending your mortgage to pay off your debts, although the danger with this is that you could end up running them up again straight afterwards, leaving yourself even further in the red.

However, provided you are disciplined, and as some loans penalise you if you repay them early, it can be sensible to use the equity from your home, especially while interest rates are so low. Do remember, however, that you are increasing the length of the term of the loan and you will spend much longer paying the debts back.

Lenders are also very cautious about how much they will let people borrow, so you will need to have an excellent credit history and be able to demonstrate that you can afford higher monthly repayments.

Don’t suffer in silence

If you feel as though you are drowning in debts, then make sure you talk to everyone you owe money to and explain that you are having problems. They may help you negotiate a repayment plan which you find affordable.

If you have spoken to your creditors, but have been unable to reach as solution, then you must seek professional help as soon as possible.

 The Consumer Credit Counselling Service (CCCS) offers a free self-help pack which shows you how to budget effectively and how to write standard letters to creditors asking for payment holidays. Your local Citizens Advice Bureau (CAB) should also be able to provide you with advice as to what to do next.

Consumer Credit Counselling Service 0800 1381111
National Debtline 0808 808 4000

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.

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