This is a golden time for those in debt. While that may seem a strange thing to say, the best EVER deals for cutting loan, store or credit card costs are now on the market.
So if you've existing debts, a little bit of action could save you £100s or £1,000s.
The aim's to cut the interest rate you pay, so more of your repayments clear the debt rather than servicing the interest, so you're debt-free far quicker.
Borrowing more just makes the problem costlier and longer-lived. You can’t borrow your way out of debt. The tips below are about getting new products, not borrowing more.
Credit & store card debt: Shift to 31mths 0%
If you've debts on cards, do a balance transfer. This is where you ask a new card to pay off debts on other cards, so you owe it instead, hopefully at a cheaper rate.
Currently, accepted new Barclaycard customers can shift debt to it at a new record 31mths 0% with a 2.99% fee. Halifax is 30mths with a 3% fee, or, if you can repay quicker, Lloyds has a 24mth 0% card with a lower 1.5% fee. Deals can change daily - for the latest, see www.mse.me/BTs To get a card, you must pass a credit score. Usually the only way to find out is to apply, which marks your file.
To get round that, find which card’s most likely to accept you with my free Eligibility Checker at www.mse.me/eligibility Follow the balance transfer golden rules:
a) Always repay at least the set monthly minimum, or you lose special rates.
b) Always plan to shift the debt again or fully repay before the 0% ends, or these cards' rates jump to 18.9% and 17.9% representative APR.
c) Don't spend on these cards – it's usually not at the same cheap rate.
Loan debt: can you cut the cost?
This is more difficult, as most old loans charge up to two months' interest to repay early, which needs factoring in.
It's worth trying if you can get a much lower APR loan (ie, more than a fifth off) and have a while left to repay – especially if your credit score's improved since getting the loan.
What are the cheapest loans? For accepted customers getting £5,000 - £7,500, www.sainsburysbank.co.uk is 5.7% representative APR. Borrow over £7,500 and www.santander-products.co.uk offers 4.5% representative APR.
Sadly, these are ‘representative APR’, so only 51% of accepted applicants must get the advertised rate. Others can pay more.
Overdrafts/catalogues: Shift to 0%
If you've a costly overdraft or need to put money in a bank account to pay off catalogue debts, there’s a way to use a credit card for this.
A few balance transfer cards let newbies 'money transfer' cash into your bank account, so you then owe the card instead.
Most cards don’t do this at a cheap rate, but www.mbna.co.uk Platinum offers accepted new customers 29mths 0% for a 4% fee and www.fluid.co.uk is 28mths, 4% fee. Both are 22.9% rep APR after, so pay off by then. This can be tricky, so read full help at www.mse.me/moneytransfers.
You could, of course, find a 0% overdraft. Both First Direct and Nationwide offer this if you switch to them, but the amounts offered are usually limited.
Don't repay all debts equally – attack the highest APR first
Once your debts are as cheap as possible, list them all, including overdrafts, in order of APR. Then focus every penny on clearing the highest APR one as it grows fastest, just paying the minimum on the others. Once that's clear, move to the next highest.
The more you pay off, the better. If you just stick to minimum repayments, you’ll take years or decades to be debt-free (they're designed so you just clear the interest). The exception to the ‘highest APR first’ rule is loans with penalties for overpaying early.
Set up a direct debit to protect your credit score
Forget or make late repayments and you risk losing 0% deals, being fined and suffering a hit on your credit score. So set up a direct debit to cover at least the monthly minimum, then manually pay more on top each month.
Got both debts and savings? Stop
£1,000 credit card debt at 18% costs £180 a year, while the same amount saved in top paying savings earns just £15 before tax. If you’re thinking “yes, but I like some spare cash”, this is often false security. More at www.mse.me/ClearDebtsWithSavings
Free debt crisis help
While my tips above should help cut the cost of debt, for some people that isn’t enough. If you're struggling to meet your minimum repayments and basic bills, have non-mortgage debts bigger than a year's salary, or can’t sleep for worry, you're likely to be in debt crisis.
If so, ignore the options above and contact a non-profit debt advice service that uses a different set of solutions, such as StepChange (stepchange.org), Citizens Advice (citizensadvice.org.uk) or National Debtline (nationaldebtline.co.uk). Don’t worry, they’re there to help, not judge.