I’ve got £7,500 on credit cards. What can I do?

Category: Credit cards
Date: 7/19/2011

Credit card debt can be soul-destroying. The trouble is that balances can often just sit there, without getting smaller – even though you make the minimum repayment each month.

£7,500 is a fair sized amount of debt and to shift it is going to take some sacrifice. But there are also other things to consider – would it be better for you to repay your card debt by transferring to another card, by taking a personal loan – even by adding the debt to your mortgage? Let's explore some different options…

Work out your budget

How much can you commit to repaying your debt? That's the key question. Take a fine tooth comb to your spending, can you make any savings? Can you get a better deal on your energy or insurances to free up a bit of extra cash? Even if you can only find an extra £10 or £20 per month, that's money that will help get you debt-free sooner.

Barclaycard balance transfer credit card

The first option you could look at is a balance transfer credit card. Used effectively, repaying your debt on a 0% balance transfer card can work out a lot cheaper than a personal loan.

At the time of writing there is no better than the Barclaycard Platinum Extended Balance Transfer Visa which offers a ground-breaking 0% on balance transfers for 24 months (a 2.8% balance transfer fee applies).

So, let's see how much of a dent switching to this card can make in your debt of £7,500…

All figures quoted assume a balance transfer fee of 2.8% being added to the card balance. You may not be accepted or be granted a credit limit of £7,500 by Barclaycard – this will depend on your credit status and annual income.

When transferring to another credit card you need to remember to be disciplined. The Barclaycard allows you to pay off a fixed amount by standing order which is a huge help – the money will leave your account automatically just like your other bills.

This option might not be for you if:

	Barclaycard may not grant you a credit limit of £7,500 to allow you to transfer your credit card(s) across. The credit limit you are offered will be based on a number of factors, including income and your credit history.
	You need to transfer a balance from another Barclaycard – you'd need to look for another provider instead.
	You can't afford even the minimum payment. If this is the case then you'll need to consider re-financing your debt over a longer term, or even look into taking debt advice. You can get free debt advice from the Consumer Credit Counselling Service.

Nationwide's cheap personal loan

Credit cards aren't for everyone. If you've racked up debt on plastic then the prospect of taking out yet another credit card might not be that appealing. You might want to see a definite end to your debt – in that case a cheap personal loan might be the way to go.

At present, the loan provider offering the lowest rate (and therefore payment) is Nationwide BS at 6.6% APR. The question is: how long do you want the loan over?

If you are an existing customer of Nationwide you can get an even better rate than this on their website, of 6.5% APR!

In order to pay as little interest as possible, you're always best to go for as short a term as you can. Nationwide loans only go up to a term of 5 years. You could repay this over a longer term – if you do, the Marks & Spencer Money personal loan is the most competitive…

Should I add my credit card debt to my mortgage?

Adding credit card debt to your mortgage balance is not usually the best idea. The attractive part of it is that you'll probably have lower outgoings by doing this, but you'll be repaying your debt over many more years and paying a shed-load more interest. So it's best to repay your credit cards separately to your mortgage if you can.

Remember that adding a card balance to your mortgage means that your credit card debt is secured against your property. If you don't keep up repayments your home could be repossessed. In contrast, if you don't keep up repayments on your credit card, the credit card lender can't force you to sell your house to repay the debt.

Another negative is that adding your credit card debt to your mortgage will increase your loan-to-value percentage (the amount of mortgage you have, as a percentage of the value of your property). If you have a high loan-to-value and house prices go down, you may have problems in the future if you need to remortgage or move house.

If you are considering putting credit card debt onto your mortgage think carefully and seek independent financial advice.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.