Start the New Year Fresh by Consolidating Debts

By: MoneyFacts

A brand-new year provides the perfect opportunity to revisit finances and work out how much money is being wasted by incurring interest on costly credit cards. As 2018 begins, those borrowers with multiple credit cards could find their debt getting out of hand, with the temptation to borrow becoming too great.

An alternative would be to consolidate debts into one affordable unsecured personal loan, where the monthly repayments would remain unchanged and the debt is guaranteed to be gone by the end of the term – so long as a borrower continues to keep up with repayments, of course.

The latest research from moneyfacts.co.uk shows that the average rate on an unsecured personal loan is 4.6%, based on a £10,000 loan over five years. Better still, borrowers could get a loan charging less than 3% today if they apply for a Best Buy deal, subject to status. However, with growing scrutiny to unsecured debt by the Bank of England, interest rates on these products could rise in 2018, so we could start to see the lowest of the low rates creeping up.

Rachel Springall, Finance Expert at moneyfacts.co.uk, said:

“It’s clear to see that personal loans can be a popular choice for borrowers looking to consolidate their debts and as we enter the New Year there may well be those hoping to rein in their credit card debt by moving it over to a more manageable loan.

“There are pros and cons to doing this, as with a credit card borrowers can change their repayments from a fixed payment to the minimum repayment in times of crisis, but with an unsecured personal loan borrowers must be sure to keep up with the set repayment each month. However, a loan could be perfect for those who can’t resist the enticement of using more of their credit card limit and who need a sensible product to pay back their debt over a fixed term.

“It may be useful to revisit any older loans as well, as chances are the interest rate charged is higher than what could be achieved today, even looking back just five years ago. The average loan rate on £5,000 over three years was 11.7% back in 2013, but today it’s just 7.2%. Before applying for a new loan to transfer debts into, however, customers would need to work out what any early repayment charge may be and see whether they would still be better off switching. It’s also worth keeping in mind that out of all successful applicants, a minimum of 51% are offered the advertised rate.

“Another word of caution to any potential loan applicants: don’t assume that your high street bank will offer you the best deal. Make sure to shop around, because non-high-street loans are typically cheaper; the lowest rate on the market today on a £5,000 loan over five years comes from Hitachi Personal Finance at 3.4%, while the lowest high street bank loan for new customers is priced higher at 4.5% from Santander.

“It’s worth keeping in mind that the main value that can be gotten from a high street loan is the same as that of any other loan, namely the rate. As such, loyalty doesn’t really pay.”

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Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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