Consolidating credit card debt: how to guide

If you’re someone who has high cost credit card debt, and you want to make a plan to get out of it quickly (and for good!) this blog may be able to help. In this blog we will cover how you can pay off a credit card with either another credit card or a personal loan.

While that may sound confusing, if you do it right, it could save you a lot of money by helping you pay less in interest.

Paying off debt with debt - how does that work?

Debt consolidation is the name for a loan that you use to pay off all your other unsecured debts. Unsecured debts include credit cards, store cards, overdrafts, personal loans and payday loans but excludes your mortgage.

A debt consolidation loan can be used to pay off higher cost debt or multiple high cost debts with one lower rate loan.

Consolidating debt means that you will only have to make one monthly payment rather than several monthly payments to cover your debts. This can make it easier for you to manage your finances and makes keeping up with your payments simpler.

To consolidate debt doesn’t necessarily mean you have to have lots of different debts. You can also look at doing this if you only have one debt, for example a credit card.

I’m interested - what are my options?

The first step is to take a look at your current credit card and/or loan interest rates, as well as how much you owe. Making sure you know your various rates, how much your current payments are and your total balance owed (across all of your debts!) is really important. This is so you can ensure you are finding a deal that will mean you pay less interest, not more!

Option 1: 0% APR Credit Cards:

• If you have an existing credit card, ask whether your credit card provider would offer you a 0% balance transfer deal for a fixed period, and what the fees would be
• If you can’t get a 0% balance transfer deal with your current provider, it’s worth exploring the options. You can do that with comparison websites like MoneySuperMarket or MoneySavingExpert

This would likely be the cheapest way to pay off existing credit card debt- as long as you repay the full amount within the interest-free or low-interest period. But it’s worth remembering that you’re likely to need a good credit rating to get one of these cards.

Option 2: a lower-rate loan:

With interest rates still at a very low level in the UK, you can find loans in the marketplace which could cost a lot less than a typical credit or store card. When consolidating your credit cards into a personal loan, most of the options in the market will look closely at your credit score and what rates you are offered will be dependent on how good your score it.

If you want to explore refinancing your loan or whether paying off your credit card at a lower rate could save you money, Salary Finance may be able to help.

At Salary Finance we partner with your employer to take loan repayments from your salary. That means that we are able to accept more people than traditional lenders and base our decisions on affordability rather than just a credit score. If you’re interested in finding out more, choose your employer here to see the options and rates available to you.

How could a debt consolidation loan help me? Should you choose to consolidate your debt you can benefit from having one fixed payment a month instead of juggling several, and some loans (including Salary Finance) will even allow you to make overpayments without penalty.

In reality it could save you a lot of money by paying less interest, and also see you get out of debt quicker:

The devil’s in the detail!

When consolidating debts, you have to tread carefully or it can lead to more debt in the long run. Why? If you want to get out of debt for good you need to make sure you’re not tempted to spend more than you can afford on a credit card again.

Debt consolidation is not the best solution for everyone. When paying off debts, it’s important to look at the interest rates as well as the total repayment amounts. Make sure whatever option you choose will see you paying less in interest and getting out of debt quicker.

Things you need to check:

• The rates: always look at the interest rate and ensure that it is lower than what you are currently paying
• The duration of the loan: will the new loan see you paying off your debt quicker?
• The amount you would need to pay each month. Sometimes if you are consolidating multiple debts, paying this off and having one monthly repayment can mean having a higher monthly payment than before.
• Fees & charges: when consolidating debt you need to consider any hidden costs and fees. Make sure there aren’t any penalties for early repayment or extra charges.
• Have you cancelled your cards? If you had various credit cards, remember to pay them off and then cancel the cards! If you don’t do this, the temptation can be too much and you can find you end up with even more debt.
• Your credit score first: for credit cards and personal loans, you have a better chance of getting a good rate or being approved if you have a good credit score. You can check your score at: Clearscore, Experian and Equifax.

When you owe money it can feel like a never-ending battle. But it’s important to remember that by taking action you can absolutely do this! Debt doesn’t need to weigh you down forever, but you’ve got to make a plan and tackle it head-on.