Debt free step 8: Damage limitation

View of kings cross train station

The worst form of debt you can have is store credit. They usually have the worst interest rates and can be harder to cancel. Credit cards are the second worst, but if credit cards are what you have, there are steps you can take now to limit the damage.

Depending on what your credit rating is, it may be possible to take advantage of some interest-free periods by switching your credit card debts, either to other credit companies or by consolidating debts into a loan with your bank. Switching credit cards for an interest-free deal is not a permanent solution, but it can make it easier to pay off the debt quicker.

A consolidation loan may be more up your street if you’re finding it hard to budget. You will have a fixed payment each month, which can make it easier to stick to, as opposed to a credit card balance where you have to choose an amount to pay off each month. Bank loans also usually offer lower interest than a credit card, so it depends on how long you think it will take to pay everything back.

It’s best to tackle these issues head-on, and now is a great time to do it; interest rates have been historically low (although they are now rising), which means securing a credit or loan agreement now could save you a lot of money in the long run; much more than the odd take away or movie ticket.

Don’t be afraid to speak to someone in your bank about these options – even if you have missed a few payments, they should be ready to help you find a solution that makes the debt easier to pay off. If they are being difficult, speak to Citizens Advice or National Debt Advice.

While it’s good to have an emergency cash fund, for unexpected costs (car maintenance, or a big bill) of up to £500, debt always costs more than savings earn. If you have savings as well as debts, just cancel the two out and you’ll most likely be better off.


Go to Debt free step 7

Go to Debt free step 9

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