How to clear your debts

Harriet Meyer / 26 March 2015

A guide to clearing your debt quickly and avoiding costly mistakes.



Millions of us call debt advice lines every year seeking advice on how to manage our finances. This could be the result of simple over-spending or, for homeowners, a common problem is paltry endowment payouts that fail to pay off mortgage debt.

Depending on your situation and the size of the debt, there are several solutions you could consider. Whichever option you pick, remember to check rates carefully, any fees involved, and clear the debt with the highest rate of interest first.

0% balance transfer credit card

There are certain credit cards that can help to manage your debts. If it’s a small sum you need, using a 0% balance transfer card could be the best option, provided you have a plan in place to clear this debt by the end of the period.

Cards currently on the market come with interest-free periods of up to 23-months, although there’s often a fee of up to 4% to move a balance onto the card.

This is the cheapest way to borrow over the short-term, but usually card providers won’t offer limits above £5,000 – so it won’t work for large debts. Remember, you’ll have to set up a direct debit to at least meet the minimum payment each month.

Find out more about balance transfers...

Consolidating debts

Plenty of adverts shout about plans to ‘consolidate your debt’. Yet the simplest way to do this could be to take out a personal loan for the amount you need.

This way, you have one repayment to meet each month, although check the interest rate is lower than you currently pay on any debt to make it worthwhile. Useful sites for comparing rates are Moneyfacts.co.uk and MoneySuperMarket.com, which show there are low rates on offer at just 3.2%.

Remember that if you choose at any stage to extend the term of a loan, you may reduce the monthly payments, but this will increase the overall cost in the long run.

Want to simplify your debt repayments? If you're aged 50 to 75, a Saga Personal Loan could be for you. Find out more. Provided by Shawbrook Bank Limited. Representative 7.9% APR (fixed).


Equity release

If the lump sum you need is large, releasing a portion of your home’s value without facing monthly repayments is a possibility. This may be especially effective if you are reaching the end of an interest only mortgage without sufficient funds to clear the debt.

This option, known as equity release, allows over-55s to borrow against their home, with the debt and accrued interest to be repaid when they sell up, move into care or die. But while it’s an attractive solution for some, it shouldn’t be entered into lightly as it is a long term arrangement and you need to take the effect of compound interest rates into account. Some providers allow you to take a lump sum and make monthly interest repayments, so that you only ever owe the amount released. 

For further information check the Equity Release Council, formerly known as Safe Home Income Plans, or SHIP. Saga also offers an Equity Release Advice Service

Find out more about equity release...

Finally, a warning…

Avoid payday lenders that offer cash to struggling borrowers. They may appeal for a short-term fix, but these loans come with sky-high interest rates.

For more information on your options call National Debtline on 0808 808 400, or go to National Debtline.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.