Ways to Repay and Consolidate Debt

Data released at the beginning of 2024 revealed that 6.7 million people in Britain are in financial difficulty. 13% of adults were reported to have missed at least three credit or bill payments in the six months before the survey was carried out.

When you borrow money, you’ll usually be charged interest on your outstanding balance. The amount you have borrowed, plus the interest charged, is your debt.
As of August 2024, the average debt per UK household, including mortgages, was £65,380.

If borrowing isn’t managed correctly, it could mount up and cause serious money problems, a decline to your credit score, and increased financial pressure.

If you’re working on repaying your borrowing, there are several methods you could consider. We’ll look at debt consolidation, as well as some debt-clearing methods that you might find useful.

The information contained in this article is meant as a general guide and does not constitute nor should be taken as advice.

Balance transfer credit cards

If you’re currently paying off multiple credit cards, you might be interested to learn more about balance transfer credit cards.

As the name suggests, a balance transfer credit card allows you to move the balance of one or more existing credit card(s) onto a new credit card which offers either 0% or a low interest rate for a promotional period. This could reduce the amount of interest you could be charged, making your new monthly repayments lower than what you are currently repaying.

To understand whether a balance transfer credit card could be an option for you, you should start by working out how much interest you’re paying in total across your current credit accounts. If you’re applying for a credit card with a low interest offer, ensure that any interest you will be charged on your new credit card balance is less than what you are paying on your current credit card(s).

If you choose to go ahead and transfer your balance(s), you should aim to pay this off before the promotional period comes to an end. After this time, any outstanding balance will be charged interest at your standard interest rate.

Things to bear in mind

• You could be charged an initial fee to transfer your balance(s). This is usually calculated as a percentage of the total amount of money you’re transferring and may be subject to a minimum amount. You should include this into your calculations when working out if a balance transfer credit card is right for you.
• There could be restrictions on how much you’re able to transfer. You may only be allowed to transfer balances up to a total of 90% of your credit limit, for instance.
• You should be prepared for any interest you could be charged on any outstanding balance once your promotional period comes to an end. After this time, your balance will be charged at your standard rate of interest, as set out in your terms and conditions. This could be higher than the interest rate(s) you’re currently paying.
• You cannot transfer balances between the same credit card provider. For example, if you had a NatWest credit card, you wouldn’t be able to move your balance onto a NatWest balance transfer credit card.
• If you make a late repayment or miss one altogether, you could lose access to the promotional offer.

Debt consolidation loans

A debt consolidation loan could make your finances more manageable by having all of your borrowing in one place.
Here’s an example of how it works:

1. Let’s say you have several accounts, for instance; a credit card with a £3,500 balance; a second credit card with a balance of £500; and a £1,000 personal loan. Added together, your borrowing comes to £5,000. Each debt has its own interest rate.
2. Keeping on top of multiple accounts may be confusing and paying multiple interest rates could be costly. You might think about taking out a £5,000 debt consolidation loan, using it to pay off all three of your debts, and then making a single repayment with one interest rate each month.

The example given here is for illustrative purposes only and does not constitute nor should be considered as advice.

Think VERY carefully before adding any new debt

As a number of debt consolidation methods involve taking out new borrowing, it’s crucial that you take the time to do thorough research before deciding whether this is the right option for you.

You should also take any possible early repayment fees into consideration. For example, some lenders may charge a fee for clearing the balance of a loan in full before the end of the loan term.

Options to consider when clearing your debts

If you’re unsure whether debt consolidation is right for you, you might be interested in considering a range of debt-clearing methods and options instead.

The Snowball Method

The snowball method is a debt-clearing strategy that starts by paying off your smallest debt first. Watching your debts clear, one by one, can be empowering and could motivate you to keep going until you’re completely debt-free.
Here's how it works:

1. Make a note of all your debts and list them from the smallest amount owed to the largest.
2. Aim to clear the balance of your smallest debt first, while still making at least the minimum repayment amounts on each of your other debts.
3. Once the smallest debt has been cleared, turn your attention to the second smallest, working your way up until all your debts have been repaid.

It’s important to remember that this method does not take interest rates into consideration, and your smallest debt might not necessarily be the one with the lowest rate of interest. With this in mind, the snowball method might not be the right solution if you’re hoping to save on interest.

The Avalanche Method

The avalanche method is based on interest rates, rather than debt amounts.

1. List your debts in order from the highest interest rate to the lowest.
2. Continue to make at least the minimum repayments on all your debts but put any extra money that you can towards repaying the debt with the highest rate of interest.
3. As soon as you’ve repaid the debt with the highest interest rate, focus on the next one on your list. Pay off each credit account in order, based on the interest rate, until all debts have been cleared.

Borrow from friends or family

Could family or friends help you out by lending the money needed to repay your debts?
If a loved one is happy to lend you the money interest-free, it’s important to discuss this beforehand so that you’re both in agreement with the repayment amounts, repayment frequency, and the overall length of borrowing. It’s a good idea to get this in writing, with a signed copy of your agreement for each person involved.
There could be many implications if expectations aren’t met, including loss of trust and even a breakdown of the relationship.

As opposed to taking out a loan with an official lender, borrowing from friends or family could mean that you’re spared the stress of potential late fees, charges, and damage to your credit score. However, this doesn’t mean that you should become complacent with your repayments, and you should make a conscientious effort to stick to your agreed repayment schedule.

If you’re struggling with money, you should speak with your loved one as soon as possible and be transparent and honest about the situation. While this may seem daunting and could result in an awkward conversation, it’s far better than ignoring the situation and risking your relationship.

Ways to keep on top of your finances

• Create a budget
  Budgeting might sound like a tedious task, but it’s a great way to take a closer look at your monthly outgoings and see where you can make cuts. Set an hour or so aside at the beginning of each month to make a note of the expenses you expect to cover over the next four weeks, including necessities such as bills, food, and commuting costs. The money you have leftover once you’ve deducted the total cost of all of your combined essential outgoings is called your disposable income and can be saved or spent any way you like.
  The 50/30/20 method is a popular savings challenge, which suggests dedicating 50% of your income to necessities; 30% to nice-to-haves (cinema trips, meals, nights out, etc); and the remaining 20% placed into savings.


• Save money
  Having savings is useful not only in the event of a financial emergency, but also when you have a goal in mind, such as a dream holiday or a new car.
  Of course, in an ideal world, we’d all put money into our savings account every month, but this isn’t always realistic. Don’t beat yourself up if you find yourself short of money one month and don’t quite manage to meet your savings goal. These things happen; just try to work towards getting yourself back on track whenever you’re able to.
  You should also try not to stress about the amount of money you’re saving. Any money saved – regardless of the amount – is an achievement and £1 saved is miles better than saving nothing at all.


• Make your repayments on time
  Ensure that all your bills and any current credit commitments are paid on time. Making a late repayment, or missing one altogether, could result in a decline to your credit score.
  If you feel as though you’re going to miss a repayment, you should contact your lender or credit card provider as soon as possible. They will be able to talk you through any options that might be available.

Need support? Help is available.

If you’re worried about money, you can contact any of the following charities and organisations for impartial, free financial and debt management advice:

• StepChange
• MoneyHelper
• National Debtline
• Citizens Advice

The information contained in this article is meant as a general guide and does not constitute or should be taken as advice.
October 2024.