Have you got a load of credit card debt that you’re trying your hardest to forget about? Or maybe you’ve got a few credit cards that are getting close to their limits and the monthly repayments are getting on top of you?
Although they’re great for short-term borrowing, the interest rates on most credit cards mean that – as a rule – once you start paying off the debt slowly, over time, they get very expensive indeed. (In an ideal world, you should aim to pay off your credit card almost straight away, before the interest has added a lot to the amount you owe.)
However, it’s not an uncommon problem in the UK. In fact, the Telegraph reports that British households have a combined outstanding credit card debt of almost £66.2bn. £66,200,000,000. That’s enough money to buy the Solomon Islands 66 times over and still have change.
So, if you’ve got credit card debt, it might be time to start working out a way of clearing it.
How can you clear credit card debt?
Obviously, the best way to clear credit card debt is to pay the balance you owe in full every month. This helps build your credit score but also allows you take full advantage of the credit cards many advantages.
However – this is often much easier said than done, especially when times are tough. The alternative then is to take out a debt consolidation loan and to combine all of your credit card debt into one monthly payment.
Once you’ve done this, there are numerous advantages:
One monthly repayment
We’ll start with the obvious one: only having one bill to remember to pay every month.
We know what it’s like – when you’ve got loan repayments due on the 12th and 28th, credit card repayments due on the 16th and 21st, and other fixed payments coming out on top of that, it’s very easy to feel overwhelmed and to lose track of things.
The great thing about using a debt consolidation loan to clear credit card debt is that you needn’t worry when or how much you’ll be paying – that’s all been agreed in advance. With a debt consolidation loan, you can plan, anticipate and budget for the repayment date (and amount) to make sure that you’re not caught unprepared.
Access to lower interest rates
When you take out a debt consolidation loan, it’s very possible that you’ll be offered an interest rate that is preferable to the ones that you already have on your credit card debt.
However, hold your horses just a second, it’s not necessarily that simple. If you’ve a handful of debts with different repayment amounts and interests, then it’s going to take a pen, paper and a calculator to work out if you’re better off consolidating your debts or riding them out.
Sometimes, debt consolidation loans have higher interest rates too – make sure you double check the interest rate and the APR carefully to be sure that you’re going to save money in the long run.
(If that all sounds a bit confusing, you can get some help working it out for free from a number of different services.)
Fixed interest rates
Unlike credit cards and other loans, many debt consolidation loans offer fixed interest rates. This is great – it makes sure that every monthly repayment is the same (and saves any nasty surprises).
And, best of all, it brings all of your debt to an end by an agreed date
On top of all of the financial advantages of paying off your credit card debt with a consolidation loan, there’s another thing that’s hard to put a price on: the peace of mind it brings. Not only do you know when you’re going to draw a line under your debt, but you also don’t have to worry about when and how much the various different payments can be.
If you’ve ever spent the month worried that your credit card bill will take the last of your money (or secretly hoping they’ll forget to take it), then consolidating it all into one amount and budgeting for that can make a huge difference to your stress levels.
However, there is one big disadvantage (and it’s one we’ve mentioned a few times before, so we apologise if we’re repeating ourselves):
It doesn’t stop you from getting into debt again
Debt consolidation loans are great – but they can feel a little bit like a magic button that clears your credit card debt. While they’re perfect for clearing any outstanding credit card debt you have, they don’t close the cards and they don’t address the reason you got into debt in the first place. As such, it can be very easy to fall into further debt while you’re paying your consolidation loan off.
Because of this, if you’re considering a debt consolidation loan, you should see it as a chance for a fresh start; a chance to reset the clock and start again with better spending habits. (If you’re not sure where to start with that, head over to the frugal living section of our blog, there’s loads of advice on there.)