Debt Consolidation on Credit Cards and Loans
Being in debt is often a tough place to be. Having multiple debts can be particularly troublesome, as you will need to make multiple payments at a different rate so it can be difficult to keep track. However, even if you’re in very troublesome debt, it’s rarely completely unsolvable. You can normally extend or rearrange credit agreements, and work out payments in the longer term. It’s also possible to consolidate debts into more manageable monthly payments by taking out further loans. For more on debt consolidation, take a look at Baines and Ernst, or read this article for some more information.
Balance Transferring on Credit Cards
If you have multiple outstanding credit cards, or just one where you are paying interest for what is outstanding, then you should probably consider a balance transfer. There are a number of 0% deals on balance transfers available, and you should be able to get one if your credit history isn’t too weak. Once you have a balance transfer card, you pay a fee to transfer the debt (normally around 3%) then it’ll be on the new card and you won’t have to pay interest for a period.
The best balance transfer credit cards can really be assessed by how much the fee is, and how long the 0% deal will last for. Virgin Money currently has the longest 0% interest period available, at 16 months, with a 2.98% fee. If you already have one of these cards, then you should go for Barclaycard, which offers 0% for 15 months with a 3% fee. It is possible to get a card with zero fees – Santander Zero. Their 0% balance transfer period lasts for twelve months but you get a 0% fee too. It’s slightly trickier to get this card though, as you have to have a Santander current account to apply (you are guaranteed acceptance if you earn over £6,500), but as Santander’s Alliance and Leicester account is the best on the market, you should give this serious consideration if you’re trying to cut down debts.
Debt Consolidation Using Loans
If you have larger debts from multiple sources, then you should consider taking out a loan to solve it. You could take out a personal loan, or secured loan against the value of your house to clear multiple debts. It’s important that you take out a loan large enough to cover all of your outstanding debt other than your mortgage, otherwise you’ll still have the complicated situation of paying back multiple sources.
Take a look at this consolidation example:
| Outstanding debt | Amount | Rate |
| Credit card | £3,254 | 18.9% |
| Overdraft | £1,212 | 19% |
| Credit card | £2,255 | 17% |
| Total: | £6,721 |
In this example, the person with the debt would have to pay three different creditors at a high, albeit varying, rates. They could attempt to balance transfer some of their credit card debt, but because the amount is over £5,000, it’s probably best to get a personal loan. You would be able to get a £7,000 personal loan at between 8-12%, pay off all of this debt, and then make only one repayment a month at a lower rate – that’s consolidation made simple!