In February Clear Your Debts

Traditionally February is the month when people finally get to grips with the amount they have spent over Christmas, and start to clear up their outstanding bills. Banks and building societies play on this knowledge and increased the distribution of loan offers in the month.

Of course, as they know that people are looking around for extra cash, the rates they are offering are not the best at this time. Potential customers should look around for the best deal.

When paying off debts borrowers should try to pay off the one with the most expensive rate first. If it is possible to consolidate debts onto a lower rate, then that is a good plan too. Providers have not changed rates as the credit crunch has increasingly hurt them, but they have been more choosy about the customers they will lend to. Thus, if they consider you too high a risk – based on the information in your credit file – they will not lend to you.

Credit cards tend to be an expensive debt, so that is a good place to start when trying to consolidate your debts. Currently Virgin, Mint, Egg, Lloyds TSB and Abbey are all offer 0% interest on balance transfers for over 12 months. They all have a fee of up to 3% on whatever you borrow.

However, the number of people being granted credit cards on application has dwindled so nothing is guaranteed. If you do get a better credit card deal, be watchful of when the deal ends. If you fall into the regular interest rate it will probably be above 15%.

To avoid that you could consider a life-of-balance transfer card, which gives you a reasonable interest rate for ever on the transferred amount. At the moment he best is from Leeds BS with a rate of 5.9%, though it does have a fee of 2% of the amount you transfer.

Otherwise you could consider a fixed-rate loan. This will give regular repayments over a set period until your debt is paid off. The cheapest rate for a £5,000 or £10,000 loan is with Moneyback Bank, part of Alliance & Leicester, where the rate is 6.7% for those with the best credit, giving monthly repayments of £153 a month over three years for a £5,000 loan, and £195 for £10,000 over five years.