Don’t be fooled by debt consolidation
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Goldfish’s new credit card has a rate of 4.9% on balance transfers, fixed until January 2011. There is a balance transfer charge of 3%.
Alternatively, Barclaycard’s Simplicity card has a lifetime rate of 6.8% on balance transfers and purchases.
Taking out a personal loan is also an option if you need longer to repay the debt. Rates start from as little as 6.5% with Sainsbury’s bank for a loan of £10,000 taken out over five years.
This rate may rise depending on your credit rating. YourPersonalLoan.co.uk guarantees that all successful applicants taking out its £10,000 loan over five years will receive a rate of 6.9%.
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Will remortgaging help you relax?
Homeowners struggling to pay the debts may be able to take advantage of equity in their home by remortgaging to consolidate their debts. Because mortgage rates are still relatively low, this can bring down the cost of borrowing.
On the downside, because the debt is spread over a much longer period of time, it can prove more expensive in the long term – unless you overpay on the mortgage.
Research shows a high number of people with large debts also have money in savings which could instead be used to reduce the debts. As a rule of thumb, if you’re paying out more in interest on debts than you earn on savings, you’re wasting your money.
Finally, don’t panic! And don’t stick your head in the sand. Most lenders are keen to help customers who are struggling and may be prepared to accept a small monthly repayment rather than receive nothing at all.
It may also be possible to freeze the interest on the debt while you get back on your feet.
