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How to reduce the cost of your personal loans, credit and store card debt

When was the last time you checked the interest rates on your personal loan, credit card or store card debt?

If you have unsecured debts, you may well be paying too much in interest. Recent Bank of England figures revealed that the average credit card rate in the UK is now 17.3 per cent – the highest for 11 years.

There are some simple steps you can take to reduce the cost of your personal loans, credit card and store card debt. We outline them here.

Pay your most expensive debts first

If you have various debts, you can save money by prioritising those with higher interest rates. Generally speaking, you will pay the highest interest rates on store cards, then credit cards, then personal loans.

Work out what interest rate you’re paying on each type of debt and pay as much as you can to the most expensive debts first. This will help you to reduce the total amount of interest that you are paying.

Switch to another loan

With strong competition in the personal loans market, you may find that it is possible to pay off your existing loan in full and take out another loan at a more preferential interest rate.

For example, if your new loan rate is 2 per cent lower than your existing rate, you’ll save £200 per year on a £10,000 loan.

If you do decide to switch, make sure that you take any fees and charges that come with the new loan into account. Make sure also that there aren’t any penalties for repaying your existing loan.

You may also decide to take your loan over a shorter period. While this may result in higher monthly repayments, you will pay less interest over the term of the loan. This won’t save you money on a monthly basis but it should reduce the total cost of your borrowing.

Transfer your card balance

With the average credit card balance in the UK at 17.3 per cent and two thirds of store cards charging 25 per cent interest or more, there are savings to be made by transferring a card balance.

Lots of card providers offer 0 per cent ‘balance transfer’ deals or low rates for the lifetime of your balance transfer. By moving your balance to a low rate card, you can save a considerable sum in interest. It also ensures that more of your monthly repayment is going towards repaying your card balance, helping you to clear your card balance more quickly.

Consolidate your debts

If you have various unsecured debts then one option is to consolidate these debts. You do this by taking out one larger loan – often on a secured basis – and paying off all your smaller credit card, personal loan and store card debts.

Interest rates on debt consolidation loans are often lower than on other types of borrowing, meaning that you will pay less interest. You may also find that your single monthly payment to a debt consolidation loan is lower than the combined payments you were making to all your other debts.

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