How to get out of debt: managing existing loans

16th July 2018

By Kurt Wood

Debt can be a slippery slope once you get into the bait of borrowing. It can spiral out of control, very quickly.

Keeping a watchful eye on your loans and credit cards is a must if you want to avoid getting stuck in the dreaded debt trap.

But for those of you who may have gone too far down the rabbit hole, there are ways to turn things around to get your finances back in order, so never fear.

Here are some tips and tricks on how to consolidate debt, pay off loans and credit cards efficiently, and get out of debt.

Understanding debt

A great place to start. There are very few people who walk through life without incurring some form of debt. Whether it’s a student loan for college or university, a mortgage for a house, or a credit card for emergencies, getting credit is actually an essential part of life.

The key thing to remember is how you use the credit can have a significant impact on other elements of your life. Going over your limits or not paying back your debt can severely impact your credit score.

Type of credit and what they’re typically used for

When it comes to achieving your goals in life, you may need to borrow credit. Here are some types of lending people use to help with their goals.


Very few of us will have access to cash to purchase a house. A mortgage, typically spread over 25 years, gives us the ability to buy the roof over our heads.

Student loans:

Unfortunately, to continue to study through Higher Education in the UK, fees and living costs need to be paid for. Student loans offer the ability to fund your study. You only start paying back your student loan once you start earning over a certain amount, thankfully.

Credit cards:

Purchasing large items or online can be risky. Using a credit card can offer protection on purchases through Section 75 protection. Credit cards also allow you to cater for those emergency bills.

Personal loans:

Buying cars, furnishing a property and consolidating debt can be expensive. A personal loan allows you to spread the cost over time.

Remember, it can be easy for spending to get out of control - especially with credit cards and personal loans. It can significantly impact your life both financially and your health. If you do find yourself in this situation, then there are steps you can take to help get yourself out of debt.

Debt management

Understanding the difference between good debt and bad debt is important when deciding whether you really need credit or a loan.

Good debt can be as much of a burden if you over-commit with instalments that you can’t afford. Once you start to struggle with repayments, it can be a downward spiral.

The first step of debt management is to acknowledge the problem and put a stop to the vicious cycle of borrowing. Avoid further credit if possible. Look at a long-term solution instead of living day-to-day. Perhaps you need to cut back on certain expenses or look at finding ways to earn more.

Start analysing your spending habits and look at what you can cut back on. There are great tools out there that can help you manage your money better and give you the insights that you need. Check out giffgaff gameplan.

Although you might not want to take on additional borrowing, it might be worth considering a consolidation loan, suitable if you have multiple credit cards and loans to pay off.

Debt consolidation. What is it?

Debt consolidation is a refinancing solution that involves taking out one loan to pay off other loans.

This is suitable for anyone who makes multiple repayments across different credit cards, loans and overdrafts, but not necessarily for those with one large source of debt.

The purpose of debt consolidation is to bring all your loans into one place, so you can easily manage your total balance.

It also helps if the loan or 0% balance transfer is at a lower interest rate than your other cards or loans, even just for a period of time as you will pay less interest overall.

Be careful though as you could end up paying more over the longer term if you extend the length of the repayment term.

Should I get a loan to pay off debt?

If you have multiple loans that you’re struggling to keep up with, the best way to consolidate debt is often to take out a loan to pay them off. Consolidation loans can make your finances easier to manage, while also saving you money on interest by bringing all your repayments together.

To pay off your debt consolidation loan, you will have monthly instalments. Usually a fixed rate often has a lower monthly repayment. Which is easier than juggling multiple payments.

Be aware that you might struggle to get a good deal if you have a poor credit rating.

There are loans available to those with poorer credit scores, they don’t tend to come with the best rates however.

Taking out a consolidation loan is only recommended if you can comfortably manage the monthly repayments. Otherwise, you risk further damage to your credit rating.

Tips for paying off credit cards

If you can’t get a loan to consolidate your debts, make sure you have a plan to pay off your credit cards. Reducing your debt is the best way to improve your credit rating.

Here are some tips on paying off your credit cards faster:

Don’t just make minimum payments:

Minimum payments barely scratch the surface of your total balance. Use a credit card interest calculator to work out an amount you can pay each month to reduce your debt total as quickly as possible.

Set payment reminders:

Don’t miss any monthly payments. If you do, you’ll be charged more, and the late payments will show up on your credit file. Set payment reminders or set up direct debit payments.

Pay off cards with higher interest first:

The best way to go about paying off credit cards is to tackle the highest interest account first. This way, you’ll minimise the interest incurred over time.

Settle small balances for a quick win:

Reducing the number of loans/credit cards you have open can be beneficial for your credit rating too. If you have a card with a small balance, it could be a good idea to close this first.

Tips for paying off loans

Do you have multiple loans that you need to pay off? Here are a few tips and tricks that could pay them off quicker:

Pay off high-interest loans first:

When it comes to loans, it’s best to pay off high-interest loans first. The highest interest loans will set you back the most so make sure you prioritise these.

Refinance your loans:

Debt consolidation can reduce your monthly repayments. Not only can you take advantage of better interest rates, but you can also simplify your finances with one single payment instead of multiple ones. Again be careful as you may end up paying more over the long term.

Repay loans with ‘super transfer’ cards:

If you’re disciplined and have a good credit score, it may be ideal to pay off loans with credit cards that offer interest-free transfer. These ‘super transfer’ cards can transfer money directly into your bank account and if they come with a 0% interest period, it could help to save you money. Beware of the added fees though.

Talk to your lender about extra payments:

For unsecured loans, you could be able to make extra payments within a 12-month period without any penalties. Make sure you contact your lender to find out if you can do this.

Managing monthly payments:

To manage your debts, you need to set a budget each month. Using a monthly outgoings spreadsheet is the easiest way to keep an eye on how much is coming in and out, and how much expendable income is left over.

Checking statements for loans and credit cards is also recommended so you can keep up with any changes. For variable interest borrowing, this is particularly important, because your creditor won’t let you know in advance when your interest rate changes.

Where can I turn for debt advice?

If you’re worried about debt and don’t know where to start, there are a number of places you can turn to.

You can book a meeting at your local Citizens Advice Bureau to speak to someone in person, and many of the UK’s leading charity organisations offer support, too. Step Change, Debt Advice Foundation and National Debtline are all great examples.

These charities will give you impartial advice on your debts. Ask them to talk you through the different options available including consolidation loans, debt management plans, individual voluntary arrangements (IVAs) and bankruptcy.

Find debt consolidation loans online

Before applying for any loans, check your credit report online.

If you’re not entitled to the loans you want, you could look into guarantor loans, which work by having a guarantor (usually a family member or friend) agree to make your repayments if you fall behind on them.

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