Time to get back in the black

Overspent during the festive period? Tim Moss discusses the best way to pay off your debts...

Unfortunately when Big Ben chimed two weeks ago to bring in the New Year, the debt collectors weren’t listening to our renditions of ‘Auld Lang Syne’ – for old acquaintance hasn’t been forgotten, and if you’ve received a credit card statement lately it’s sure to have been brought to mind.

As sure as eggs are eggs you’ve overspent on your credit and store cards over the festive season and it may seem like a difficult task just to pay off the bare minimum in interest each month.

However, this is a New Year – and with it comes a new regimented and organised you, or at least that’s the theory! So now is the time to fight back against debt.

The first step is to get yourself on to a product that actually allows you to pay some of the capital back. Generally this means one of two courses of action – either a 0% balance transfer card, as Steve Willey discussed last week, or a loan with a low rate of interest.

An advantage loans have is that they could potentially be used to consolidate all of your debts into one simple monthly payment that is actually lower than what you’re already paying out – allowing you to eat into your debt every month.

The choice you’ll need to make is whether you want a secured (homeowner) or an unsecured (personal) loan.

If you live with your parents, or don’t own your own home, then the choice is made for you – as you don’t have collateral to offer, an unsecured loan is the only way to go. Our loans comparison tool will help you find the lowest interest rates on unsecured loans.

However, if you own your own home or have a mortgage, the world is your lending oyster.

Generally unsecured loans are best for those who have immaculate credit ratings, particularly as lenders tighten their acceptance criteria following the credit crunch.

If you’re not sure about your credit rating then contact a credit reference agency such as Experian or Equifax and request a copy of your profile. You can also use our loans SmartSearch tool to search for deals that you are likely to be accepted for based on your answers to a brief set of questions which establish your credit profile.

However, the savviest consumers are turning to secured loans which use the equity in your home as security – making lenders more likely to offer you a decent APR.

Currently, the market leading offers are as follows – click on the links to find out more about these deals:

  • First Plus Exclusive – The cheapest homeowner loan in the UK with a rate of 6.2% APR. This is an exclusive rate you will only find at moneysupermarket.com – it is not available anywhere else, including through the First Plus website.
  • Your Personal Loan.co.uk – A rate of 6.9% APR makes it one of the most competitive on the market. However, what really makes this deal stand out is that this is the rate all accepted applicants will benefit from. There is no ‘price-for-risk’ policy.

If you’ve got large debts to consolidate (£25,000 or more) then your only option is a secured loan. Again, if you have a less than perfect credit score, use our loans SmartSearch tool to see what’s available to you.

Many people are reluctant to juggle their finances and take advantage of leading loan offers. However, if you’re already struggling and facing sky-high debts then don’t be afraid to make a move. As long as you’re savvy you can soon put your finances on the road to recovery.

THINK CAREFULLY BEFORE SECURING DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

DISCLAIMER: Please note that any rates or deals mentioned in this article applied at the time of writing and may no longer be available/applicable today.

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