Consolidate expensive debt to reduce interest, lower payments & stop late fees

Access the money tied in your home to get great consolidation loan rate from leading UK lenders

Credit card debt consolidation loan - a way to lower interest rates and reduce your monthly repayments

Do you have credit card debt? If so, the chances are that you are paying high rates of interest and, for some, making monthly credit card payments can be a struggle. Credit Action figures show that UK households pay, on average, £2,399 in interest repayments to personal debt every year.

One way that you can reduce your interest costs and monthly repayments is through debt consolidation. Many borrowers turn to debt consolidation as a way to save money and to help them get their household finances in order.

But what are the advantages of consolidating your credit card debts? And how can you do this? We answer these questions and more.

Why you might want to consolidate your credit card debts

If you have outstanding balances on your credit cards then the chances are that you are paying high rates of interest on this borrowing. According to Bank of England figures from March 2012, the average interest rate being charged on credit cards is 17.3 per cent: the highest figure for 11 years. This is despite the Bank of England Base rate being at a record low of 0.5 per cent.

It is not unusual for credit cards to charge an interest rate in excess of 20 per cent. So, if you do have outstanding card balances, it can pay to consolidate these debts. There are four main reasons for doing so:

  1. Pay lower interest rates. With the average interest rate on a credit card at over 17 per cent, they are one of the most expensive ways of borrowing money. Many debt consolidation solutions offer significantly lower interest rates. This means that you can reduce the interest rate that you are paying on your debt.

    However, you should bear in mind that many debt consolidation loans can spread your payments over a long period. This means that even though your interest rate may be lower, you may end up paying more interest in total as you are spreading your debt over a longer period.

  2. Reduce your monthly outgoings. If you have various credit card balances you will find that you are making several payments each month. Even if you are only making the minimum payment on your credit cards, you could find that your total monthly repayments to the various cards add up to a significant amount.

    A debt consolidation loan lets you choose the term of your loan. By spreading your payment over a number of years it can significantly reduce the amount that you are paying out every month. This can help you cut your monthly outgoings and bring your finances under control.

  3. Simplify your finances. If you make a number of payments to various different Visa and MasterCard credit cards every month it can be difficult to keep track of all your payments. You may have a direct debit set up to make each minimum payment but it can be tough to keep on top of all your payments. And, if you have multiple creditors it can be time consuming to manage your accounts – for example if you move home.

    When you consolidate your credit cards using a debt consolidation loan, you are left with one loan, one creditor and one payment. It makes your finances much easier to manage and helps you reduce the administrative burden of your debts.

  4. Reduce the chances of getting into more debt. If you borrow money on a debt consolidation loan you can use it to repay all of your credit card debts. This will allow you to close your credit card accounts and cut up your cards. The result of this is that you will be less tempted to use credit in future, helping you stay out of debt.

Consolidate your card debts using a low rate credit card deal

A great way to consolidate your credit card debts is to use a low rate balance transfer credit card.

Balance transfer credit cards typically offer a nil or low rate of interest for a fixed number of months. When you transfer your credit card balances to a low rate card, you will pay no or little interest on your debt during the special rate period.

This means that much more of your monthly payment goes towards paying your debt rather than paying interest. It is a great way to reduce your interest and repay your debt more quickly.

However, you should aim to repay the debt during the low rate period. If you don’t, you could end up paying a high rate of interest once your 0 per cent or low rate balance transfer period ends.

Additionally, it may be difficult to be accepted for the best 0 per cent credit cards. You may have to have a good income and an extremely good credit rating to qualify.

Consolidate your card debts using a debt consolidation loan

If you don’t expect to clear your debts before the end of a low rate credit card deal, or you want an alternative method of consolidating your debts, you should consider a debt consolidation loan.

A debt consolidation loan lets you borrow money in order to repay your credit card debts. You are then left with one simple, affordable monthly repayment.

There are several advantages to a debt consolidation loan. Many debt consolidations are available on a ‘secured’ basis where the lender takes a legal charge over your home as security for the loan. This enables them to offer lower interest rates and you can generally repay the debt over a longer term. This can have the effect of reducing your interest charges and your monthly payments.

However, you should bear in mind that as the loan is secured on your property, your home is at risk if you don’t keep up your repayments on your debt consolidation loan.

A debt consolidation loan may also be more suitable if you have a larger amount of credit card debt or if you are unlikely to be agreed for a credit card. Perhaps you are self employed, have a less than perfect credit record or your income is made up of bonuses and commission? If so, a debt consolidation loan could be the perfect way to repay your credit card debts.

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