Is now a good time to pay off your debts?

Many of us are saving more than ever during lockdown, so should we be using the money to repay debts?

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The coronavirus pandemic has had a huge economic impact on many individuals and families in the UK. While many have sadly lost their jobs or been furloughed, others have found the lockdown has helped them save money.

While just over a third of Brits have had to use their savings during the lockdown, the average person in the UK is also saving £99.45 on average per week by not spending money on leisure activities. According to data from the Bank of England, British households repaid a record £7.4 billion in personal loan and credit card debt in April 2020.

So if you’re one of those people fortunate enough to have a little more money in your pocket, now might be a good time to consider paying off any existing debts you may have.

Is now a good time to repay my debt?

If your financial situation has not been negatively affected by the coronavirus pandemic, then now might be a good time to pay off your existing debts, whether that’s paying off the remainder of your personal loan in full or paying off your full credit card balance instead of just making your minimum monthly payment.

While it may be tempting to use this time to boost your savings, it’s almost always a better idea to try and pay off your existing debts first. The interest rate on your loan or credit card is likely to be a lot higher than the interest rate you get with your savings account. This means you’ll end up owing more in interest than you would be saving by keeping your money in the bank. The only exceptions to this would be if your debt accrues no interest or interest at a lower rate than your savings account or if you’ll be charged a penalty for paying off your loan early.

Are payment holidays a good idea?

Many lenders are currently offering temporary payment breaks on mortgages, loans and credit card debts to customers who are struggling to meet their payments during the pandemic. However, while this can make a big difference to those who find themselves in financial hardship, they aren’t suitable for everyone.

If you’re still in a position to repay your debts on time, it may make sense to keep doing so since taking out a payment holiday can mean you end up paying more in interest and taking longer to pay off your loan or debt.

What about debt consolidation?

If you’re not in the position to pay off your debts, you may want to look at debt consolidation as a way to improve your financial position. Debt consolidation means combining multiple debts into one manageable regular repayment, ideally with a lower interest rate. To consolidate your debts, you’ll need to take out a new loan or credit product that you use to pay off your existing debts. You’ll then need to continue to pay off the new loan.

While many banks and providers have tightened up their lending, record low interest rates mean that you may be able to find a debt consolidation loan or credit card that could save you a lot of money on your debts without you having to pay more each month.

As well as a regular personal loan, a balance transfer credit card can be a good way to consolidate debt as it can be used to pay off your existing loans or debts. It will also give you an introductory interest-free period that you can use to pay off your new debt without being charged any interest.

Compare 0% balance transfer credit cards

Table: sorted by length of 0% balance transfer offer, promoted deals first
Name Product Balance transfers Balance transfer fee Purchases Annual/monthly fees Representative APR Incentive Link
Santander Everyday Long Term Balance Transfer Credit Card
0% for 31 months reverting to 20.9%
2.75% (min. £5) for 31 months reverting to 3% (min. £5)
0% for 3 months reverting to 20.9%
£0
20.9% APR (variable)
Earn up to 15% cashback with your selected Retailer Offers at selected major retailers.
Representative example: When you spend £1,200 at a purchase rate of 20.9% (variable) p.a., your representative rate is 20.9% APR (variable).
Check eligibility
M&S Bank Transfer Plus Offer Mastercard
0% for 31 months reverting to 21.9%
1.99% (min. £5)
0% for 3 months reverting to 21.9%
£0
21.9% APR (variable)
Earn 1 point for every £1 spent at Marks and Spencer's and 1 point for every £5 spent elsewhere. 100 points = £1 reward voucher. Points will be converted into reward vouchers 4 times a year.
Representative example: When you spend £1,200 at a purchase rate of 21.9% (variable) p.a., your representative rate is 21.9% APR (variable).
Check eligibility
HSBC Balance Transfer Credit Card
0% for 31 months reverting to 21.9%
2.70% (min. £5)
0% for 3 months reverting to 21.9%
£0
21.9% APR (variable)
£25 cash back when you successfully apply for an HSBC Credit card. Spend or balance transfer over £100 within 60 days of opening the account to be eligible. Available to new customers only. Offer ends 13th February 2022. T&Cs apply
Representative example: When you spend £1,200 at a purchase rate of 21.9% (variable) p.a., your representative rate is 21.9% APR (variable).
Check eligibility
Santander All in One Credit Card
0% for 26 months reverting to 17.9%
0% for 26 months reverting to 3% (min. £5)
0% for 20 months reverting to 17.9%
£3 per month
23.7% APR (variable)
0.5% cashback after £1 of monthly spend. Cashback paid monthly into card account. Maximum spend for cashback purposes is limited to credit limit.
Representative example: When you spend £1,200 at a purchase rate of 17.9% (variable) p.a. with a fee of £3 per month, your representative rate is 23.7% APR (variable).
Check eligibility
M&S Bank Shopping Plus Credit Card
0% for 23 months reverting to 21.9%
2.9% (min. £5)
0% for 23 months reverting to 21.9%
£0
21.9% APR (variable)
Earn 1 point for every £1 spent at Marks and Spencer's and 1 point for every £5 spent elsewhere. 100 points = £1 reward voucher. Points will be converted into reward vouchers 4 times a year.
Representative example: When you spend £1,200 at a purchase rate of 21.9% (variable) p.a., your representative rate is 21.9% APR (variable).
Check eligibility
The Royal Bank Balance Transfer Credit Card (eligibility criteria apply)
0% for 22 months reverting to 21.9%
0%
0% for 3 months reverting to 21.9% p.a. (variable)
£0
21.9% APR (variable)
Representative example: When you spend £1,200 at a purchase rate of 21.9% (variable), your representative rate is 21.9% APR (variable).
Check eligibility
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Full guide to balance transfer cards

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