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Saturday, December 14, 2013

How to switch credit cards to a loan to reduce debt from credit cards

Rises in credit card interest rates affect minimum monthly payments
Interest rates can be lowered via consolidation
By Claire Moylan

Credit card interest rates for 2013 averaged 18.1 per cent in the UK. Increasingly, lenders are also forcing up minimum payments in order to secure the repayment of the debt for borrowers having trouble.

If you are having trouble qualifying for a better credit card deal and can't make use of zero percent offers, you may have little choice but to try to pay off the debt ahead of schedule. For that to happen, it can be beneficial to consider consolidating your credit card debt into a fixed rate loan. This can quickly accelerate repayment of the loan and free up revolving credit lines for when you need emergency cash.

A better deal is a zero per cent balance transfer offer

Experts agree that zero per cent balance transfer offers are a better way to manage high balances on credit cards. Even balance transfer cards that offer a 3 per cent rate, but that lock in that rate for 3 years can be cheaper than a fixed rate personal loan. However, once your credit is damaged, it can be harder to qualify for these types of cards and you will need to take care of the balance first. You can also try a peer-to-peer loan online to help pay off your cards with a debt consolidation loan if regular lenders seem wary. To free up your credit and pay off the debt, a consolidation loan can work wonders, even though it's not the cheapest option.

Personal loans can wipe out most credit card debt

Personal loans can be as high as £25,000, which is high enough to clear most everyone's outstanding balances on multiple cards. You can borrow more at one time for longer periods of time and spread out the balance to make more manageable payments. It may not help your credit score that much because you are taking on more debt. Even when a bank won't offer you a way out with a new credit offer, a credit union might be willing to work with you to get things back on track.

They may ask for some collateral

If you are already in trouble with your finances, but have some financial assets you can put against a personal loan, the chances of getting approved increase. This is riskier than paying off an unsecured debt like credit card loans. People can take the asset you put up as collateral, if you default on your loan. So, be careful with the terms and conditions of personal loans as they can take more than just your good credit rating. Review the finance charges, late fees, and length of repayment carefully before you sign on for a protracted promise to repay all your debt. The same way you would compare credit card offers, you will want to do enough research to determine how to switch credit cards just as you would if you were looking at how to switch current account, as all of the little details matter when you are trying to save money.

If you are approved for a debt consolidation loan

Once you get a loan to take over the high interest credit card debt, it will free up your credit card limits again. The trick is not to get in over your head again as the extra credit will be tempting to use. If you close the accounts, it can drop your credit because you will have also reduced the amount of credit available to you when compared to the debt that you've taken on in the personal loan. If you can't be disciplined with your spending on the car until a substantial portion of the persona loan is paid off, you can use the freezer method to put your cards 'on ice.' Put the cards in a container full of water and freeze them in the freezer.

When you see something you want, the cards won't be immediately handy in your wallet. However, if it is a true emergency, they can always be defrosted and by that time you'll know whether the purchase is worth the trouble of waiting a day or so to free the credit cards from their frozen tomb. It's just one way to add a little more inconvenience to swiping a credit card until you get your finances back on solid ground once again.


About the author: Claire Moylan understands that by switching credit cards she can save money in the long term by changing to different deals. To learn more about switching cards check out the free information on the uSwitch.com website.

Image license: 401(K) 2012, CC BY-SA 2.0

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