How to get out of debt


choosing-credit-cardsSteep living costs mean that most of us will go into the red at some point in order to make ends meet, but if you're not careful debts can easily spiral out of control and it's not always obvious to see how to get out of debt.

If you do owe money, either on credit cards, or through your bank overdraft, there are ways to ensure you pay as little interest as possible so that you can clear your debts quickly. We explain how...

Credit card debts

Whether you've used a credit card for a big one-off purchase, or just to cover household bills, it's essential that you try to pay off what you owe as quickly as you can. You also want to keep the interest you owe to a minimum, so if possible you should move any credit or store card debts to a card offering a lengthy 0% introductory rate on balance transfers.

Savings can be substantial. For example, the average credit card currently charges an annual percentage rate (APR) of 17.31%. On a £2,000 balance that amounts to a hefty interest bill of £301.85 over a year, but you wouldn't pay any interest at all for a year or more if you moved your debt to a 0% balance transfer card.

But most of these cards do charge a balance transfer fee of about 2.9%, so you must remember to factor this in. You won't have to pay the transfer fee upfront though - it will be added to your balance.

Pay off as much as you can afford each month and try to clear your debt before the interest-free period ends as you will then be charged the standard APR.

Always try to pay more than the minimum, otherwise it will take you years to pay off what you owe and cost you hundreds or potentially thousands of pounds in additional interest.

For example, someone with a balance of £1,500 on a card with an average APR of 17.31%, making only the minimum repayment of 2.5% each month could take 19 years and 3 months to clear their debt and would pay an extra £1,590 in interest in the process.


If you rely on your overdraft to help you cover costs each month, then make sure you stick within your authorised overdraft limit.

Otherwise, your risk being hit with penalty charges of up to £25 per unauthorised purchase, as well as interest rates of around 20% or more.

If you find you're regularly exceeding your authorised limit, then speak to your bank as soon as possible about extending your agreed overdraft temporarily, and look at ways you can reduce your outgoings so that you can get back on track financially.

And bear in mind that some banks charge more than others for going overdrawn. Halifax and Lloyds TSB levy particularly steep overdraft charges. It's not so bad if you are only overdrawn for the odd day, but if you tend to slip into the red every month for more than five days it's worth switching to another bank.

Some accounts offer interest-free buffers, so these can be a good option if you only go overdrawn by a couple of hundred pounds. These usually only apply to relatively low limits, so you'll need to keep a close eye on your spending.

Personal loans

A personal loan can be an effective way to consolidate debts as you know exactly how much you need to pay each month and how long it will take before your debt is paid off.

A credit card requires more self-discipline as you can obviously alter the amount you pay off each month.

But if you take out a loan make sure you can afford the monthly payments and always do plenty of research as rates can vary widely. Remember that the smaller the amount you borrow, the higher the APR is likely to be, so it may actually be more cost-effective to borrow more.

The most competitive rates of interest are available for loans between £7,500 and £15,000.

Payday loans - beware!

Be wary about taking out a payday loan. Payday loans offer a short-term borrowing facility. The idea is that you pay the money back plus interest within 30 days. So say you borrow £100 one month, then you would have to pay £125 back the next month.

While a payday loan can be useful in some circumstances if you're already in debt and struggling to make ends meet, it is unlikely to be the best option. If money is tight you are unlikely to have the spare cash next month to pay off this month's payday loan, which means you'll have to borrow again and so the spiral of debt begins.

If you are struggling…

If you are finding it impossible to meet your monthly debt repayments, speak to your lenders as soon as possible. You may be able to negotiate a repayment plan that is more manageable. If they refuse to help, then seek professional help.

Debt advice charities such as the StepChange Debt Charity (formerly CCCS), Christians Against Poverty or Money Advice Trust provide help and advice free of charge. 

Alternatively, contact your local Citizens Advice Bureau. Trained advisers can help you prioritise your debts, negotiate with creditors and provide advice on a range of debt remedies so you can find an option that is right for you.

Last updated: about 14 hours ago