There's no one-size-fits-all approach to tackling debt. Yet they all have one thing in common: less interest means more of your repayments clear the actual debt, so you are debt-free quicker. We're going to tackle loans, overdrafts, credit and store cards, payday loans and catalogue debts one at a time.
1. Cut credit card costs - get 23mth 0% (or 40mth 0% for a 2.95% fee). This is easy as there's fierce competition to cut your interest. It's all about balance transfer deals, where you get a new card that repays debts on old cards for you, so you owe it instead. Yet don't just apply, that marks your credit file - use our Eligibility Calc to find your acceptance odds first.
The top new cardholder 0% balance transfers
Go for the LOWEST FEE, if you're sure you can repay in that time
|CARD||0% DEAL (REP APR AFTER 0% ENDS)||ONE-OFF FEE|
|Halifax* - longest no-fee 0% card||Up to 23mths 0% (18.9%)||NONE|
|AA* - no-fee card where 0% length isn't an 'up to'||22mths 0% (19.9%)||NONE|
|Barclaycard* - good midway card||Up to 32mths 0% (18.9%)||1.13%|
|Halifax* - longest 0%||Up to 40mths 0% (18.9%)||2.95%|
|Virgin Money* - longest 0% where length isn't an 'up to'||38mths 0% (18.9%)||2.49%|
As Michelle emailed us: "Thank you. I was paying through the nose for £1,700 on Capital One, it'd have taken YEARS to pay it off. I tried your eligibility checker, got 36mths 0% and will now pay it off within that timeframe." That's an approx saving of £980 in interest. Yet follow the golden rules...
a) Repay at least the set monthly min, or you can lose special rates.
b) Always clear the card/shift again before the 0% ends, or rates jump.
c) Don't spend/withdraw cash on them, it's rarely at the cheap rate.
d) Unsure what to pick? Use our Which Card Is Cheapest? tool. Full help in Top Balance Transfers (APR Examples).
2. Shift store card debts to 0%. These are just credit cards you only spend with in one store (or group of stores), but with far costlier interest. Eg, Debenhams' is 24.9% APR, Homebase's is 29.9%. But just like with credit cards, you can balance transfer store card debt, so follow the best buys and tips in point 1 above.
Before you read on - you need to understand 0% money transfers
I'm oft asked if you can shift loans, overdrafts or other debt onto 0% credit cards. You can, but only via a specialist 0% 'money transfer' deal, yet this opens a wide door for cutting loan, overdraft and other debt costs - so let me brief you before you carry on.
What is a money transfer? It's a credit card deal letting you pay a lump sum into your bank account, to use as you like, so you owe the card for it. Full help in Top Money Transfers (do follow the Balance Transfer Golden Rules above).
What are the top deals? Virgin Money* offers new cardholders 32mths 0% money transfers for a one-off 1.69% (min £3). For longer, this other Virgin Money* card's 36mths 0% for a 2.39% fee (min £3). The Money Transfer Eligibility Calc shows your acceptance odds. After the 0% ends these jump to 20.9% rep APR (APR Examples).
3. Cut big personal loans to 3.3% or small ones to 0%. The big question is: "Can you get a new loan to clear your current one and save?" The problem is you could be charged up to 2mths' interest to pay your loan early. So...
STEP 1: Call your current lender and ask it three things: a) What your 'settlement amount' is, ie, how much it'd cost to pay off your loan today b) How many monthly repayments you have left c) The exact amount of your repayments.
STEP 2: Work out what you will pay if you stick with your current loan, by multiplying the remaining months by the repayment amount.
STEP 3: See what rate you could get on borrowing the settlement amount elsewhere. Use our Loans Eligibility Calculator to see your chance of getting a cheap deal.
If you're borrowing under £3,000 then the cheapest route is likely to be doing a 'money transfer' (see above). Above that, a cheap loan wins. For £3,000-£4,999, Zopa* is 4.6%-6.9% rep APR. For £5,000-£7,499, Sainsbury's* is 4.2% rep APR with a Nectar card (4.3% without). For £7,500-£15,000, M&S Bank* is 3.3% rep APR. Full info: Cheap Loans.
STEP 4: See if using the new borrowing to clear your current loan is cheaper than just continuing to repay. Our Cut Existing Loan Costs Calc can help.
As Becki emailed: "A big thank you. I took out a loan at a terrible rate - £7,500 interest on £15,000. I applied for a cheaper loan thanks to your email. Interest is around £1,000, so I used it to pay off the previous one saving £6,500."
4. Shift your overdraft to 0%. Debit cards can be debt cards too - if you're in your overdraft it's often more costly than credit cards, especially if you bust your limit. With both ways to get out of this, you'll need pass a credit check...
a) Switch to a 0% overdraft: First Direct* offers £150 to join it and a £250 0% overdraft (you must pay in income of £1,000/mth) so if your overdraft's under £400, this pays some off & the rest is interest-free.
Alternatively, Nationwide's* 0% overdraft can be bigger depending on your credit score, but it only lasts a year (50p/day after), so see it as an opportunity to slash it during that time. See 0% overdrafts.
b) Use a 0% money transfer credit card. In some ways it's just simpler to pay it off with a money transfer card (see above) - especially for larger amounts.
5. Payday loans. These loans are typically only supposed to last up to a month, for a max £1,000, but many get stung by huge interest rates. The best thing to do is avoid them (see Payday Loan Help for full info), but if you've got one or more there are a few things to try:
a) Credit score OK? Repay with a 0% money transfer (see above).
b) The Aqua card* gives 4mths 0% on spending (hideous 34.9% rep APR after) and accepts some with poor credit scores (use the Eligibility Calc to check). The aim here is to use it temporarily so your income can be used to clear the payday loan. Step-by-step help in Repay payday loans via Aqua.
c) See if you're eligible for a Govt-backed 0% loan.
d) Can your local credit union offer a cheaper alternative?
e) Can you get, or extend, an overdraft? See Full overdraft help.
6. Catalogue loans. These are a way of buying goods by post, internet or phone & spreading the cost. Yet check interest charges, they can be scarily high. If so, use similar techniques to payday loans above.
Q. What about student loans? In many cases here you're better to save than clear it. See my Should I pay off my student loan? guide.
Q. What about mortgages? I've focused on unsecured debt but if you want to cut mortgage costs, see my Free Remortgage Booklet and the Should I overpay my mortgage? guide.
Q. Can I shift loans onto my mortgage? While rates may be lower, as you're spreading repayments over a much longer period it'll likely cost more. If you're going to do it, at least increase your mortgage repayments by what you were paying on the loan. See Shift debts to your mortgage?
Q. I've multiple debts. Which should I focus on? The one with the highest APR, as it's growing most quickly. Focus all spare cash to clear it. Full pros and cons in Which card to repay first.
Q. I'm not getting great deals - how do I improve my credit rating? Big question, so see my 35 Ways to Boost Your Credit Score guide.
Q. I've got savings - should I use them to repay my debts? In general, yes. See my Repay Debts or Save? guide for full help.
Q. I can't sleep at night due to my debts. Help... A very common emotion, especially at this time of year. Do any of these apply to you?
- You can't even meet just minimum monthly payments.
- You have non-mortgage debts bigger than a year's salary.
- You have sleepless nights or depression/anxiety over debt.
If so, then forget my solutions above and get free, one-on-one debt counselling help from Citizens Advice, CAP, StepChange or National Debtline. They are there to help, not judge. The most common thing I hear after is: "I finally got a good night's sleep." Read some inspiring stories in our Debt-Free Wannabe forum and also see my Mental Health & Debt guide. Full info: Debt Crisis Help.
This article first appeared in the weekly email on 13 January 2016.