How to deal with debt 10 ways to pay off your debts

If you’re unable to pay your bills and don’t deal with the situation correctly, it can be easy for your debts to spiral out of control.

However, there are plenty of actions you can take to reduce your debts and regain control of your finances.

Here, we suggest 10 ways to clear your debts more quickly.

1. Switch to a 0% balance transfer credit card

While the Bank of England base rate has stayed at 0.5% since March 2009, average credit card rates have reached more than 18%. 

If you're paying interest on credit card debt, think about switching your balance to a 0% balance transfer deal - the best deals currently offer up to 28 months interest-free.

Which? Money Compare tables: 0% balance transfer credit cards - compare some of the best deals on the market 

2. Reject increases in your credit card APR

If you owe money on your credit card and your card company says it's going to push up your interest rate, you have 60 days to contact the company and reject the increase. You won't be able to use the card for further spending, but you will be able to repay anything you already owe at your old, lower rate.

Which? Money Compare tables: Credit cards for everyday spending - our tables are updated in real-time

3. Join your local credit union

Loans from credit unions are generally cheaper than loans from most other providers for smaller amounts and do not incur set-up fees, administration costs or early redemption fees.

Many credit union loans, for example, cost 1% a month on the reducing balance of a loan (an APR of 12.7%). By law, the amount of interest charged by a credit union can be no more than 2% a month (an APR of 26.8%).

Go further: Borrowing from credit unions - our guide explores benefits of taking out a credit union loan

4. Avoid payday loans and other forms of high cost credit

Not only are payday loans incredibly expensive, but they can also take advantage of the continuous payment authority  in place to make numerous payment requests in the event of a transaction not being initially verified. This could leave customers dipping into the red with their card provider. Payday loans should only ever be used as a short-term last resort.

Go further: What to do if you can't pay back your payday loan 

5. Improve your credit score

Before you apply for credit, check your £2 credit report with Experian, Equifax and Callcredit. If there are mistakes on your file, or if you have a poor credit history, this will affect your chances of acceptance when you apply for a loan, as well as the interest rate you'll be offered if your application is successful.

Go further: Your credit report explained - this guide includes top tips for improving your credit rating 

6. Pay more than the minimum on your credit card

If you only make the minimum payment on your credit card, not only could it take you years to repay the full balance, you may also be damaging your credit score. 

Your credit report records whether you make the minimum payment or a bigger amount – if you're not on a 0% deal, only paying the minimum on existing debt may suggest to potential lenders that you're struggling to balance your finances, making it less likely that they'll lend to you at a competitive rate, if they'll lend at all.

Go further: Credit card repayment calculator - see how much you could save by paying off your debts quicker

7. Consolidate your debts with a personal loan

If you owe money on a credit card or overdraft with a high interest rate, it's worth considering a Best Rate personal loan. These often charge a lower APR and give you certainty over the monthly repayment, as well as the period over which you'll clear the debt.

Consolidation loans are usually best avoided. Most either charge a high interest rate, spread your repayments over an inappropriately long period or secure the loan against your home. Consolidation loans are only worth considering if they cost you less than your current borrowing arrangements.

Go further: Personal loans - dozens of loans compared by our experts

8. Get independent, free debt advice

If you can't afford the repayments on existing debt, it's better to get free, independent advice rather than getting further into financial trouble by using fee-charging debt management companies.  

Go further: Free debt advice contacts - includes contact details for the major debt advice charities

9. Get an authorised overdraft

If you think you're likely to go into overdraft, or to exceed your existing overdraft limit, speak to your bank as soon as possible as it may be willing to increase your authorised overdraft. Going into unauthorised overdraft will trigger a whole host of extra charges and can be even more expensive than a payday loan.

Go further: Best bank accounts for authorised overdrafts - the accounts we recommend

10. Pay off debt before saving

While it's good to have a financial cushion for use in emergencies, there's little logic in having savings if you also owe money on a credit card or overdraft. The rates available on the best instant-access savings accounts are significantly lower than the average interest rate on a credit card of with an APR of more than 18%.

Using your savings to pay off your borrowing could save you hundreds of pounds a year in interest charges.

Which? Money Compare tables: Instant-access savings accounts - compare some of the best deals on the market 

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