How to clear your debts for less


One in four British workers spend a massive 40% or more of their wages repaying unsecured debts such as those held on credit cards and loans, according to new research.

But many of these debt-ridden consumers could slash the amount they repay simply by changing the way they borrow.
New figures from price comparison website Moneysupermarket show that the average consumer with unsecured debts makes repayments of £322 a month – that's 25% of the £1,288 earned each month by a typical adult.

Tim Moss, head of debt at Moneysupermarket, said: "It's worrying to see such a high number of people needing to use so much of their income just to service existing debt."

His advice includes setting up a direct debit to ensure that you pay off at least the minimum amount required each month.

"Setting up a direct debit helps consumers avoid missing payments and forking out significantly more than expected in interest payments and fees," Moss said.

Before doing that, you need to find the cheapest way to borrow, though. After all, consolidating your debts on to a low-rate credit card, loan or overdraft will not only reduce the amount you pay overall, it will also help you to better monitor their progress towards becoming debt free.

And the good news is that there are some great credit card and loan deals out there at the moment.

The Barclaycard Platinum Credit card, for example, offers 22 months at 0% on balance transfers, subject to a 2.9% fee (as long as you switch your debts within the first 60 days).

And Halifax's Balance Transfer Credit Card offers the same period – 22 months – interest free on debts of up to £3,000, with a fee of 3.5%.

You need to ensure that you can clear your debts in full, or switch again if necessary, before the introductory offers come to an end, though, as the standard interest rates on the cards are a whopping 17.5% and 17.9% respectively.

If you would prefer the security of fixed payments and a fixed repayment term, low-rate personal loans may therefore be a better choice. Both Alliance & Leicester and Sainsbury's Finance are currently offering loans at 6.3% for successful applicants wanting to borrow at least £7,500 over five years.

As with the credit card deals above, however, these rates are reserved for borrowers with good credit scores. If you know you are unlikely to be accepted on these terms, you may therefore be better off with a competitive current account overdraft.

The current account offering the best deal on overdrafts at the moment is Santander's Preferred Current Account. It charges 0% on authorised overdrafts for the first 12 months, as long as you pay at least £1,000 a month into the account.

And if you cannot manage that, the bank's Everyday Current Account also offers new customers four months at 0% on their authorised overdrafts, after which charges are 50p a day (capped at £10 a month).
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