How to clear your credit cards

Amalgamating high interest debts with a low rate personal loan could be an option.

Providing you choose the right loan you will reduce your interest payments, which will obviously have a benefit as you'll be able to pay down your balance faster and interest will accumulate at a slower rate.

However, it's important to be realistic about the term you want to take the loan out over. For example, if you take the loan over five years, you may have a lower monthly payment, but because you are paying out for longer, you are likely to pay more interest on the debt in the longer term, which will ultimately increase your costs.

To work out how much it will cost you, add up the payments you are currently making at your existing interest rate, and multiply those by the number of months and years you have to pay these over - use a debt calculator if you're not sure.

Check the money.co.uk loan comparison tables to get an idea of the rate you'd pay on an unsecured personal loan.

Then, work out how much your debt would cost you with a lower rate deal that is stretching over a longer term, and compare the two figures. You will see which is cheaper overall.

That said, you have to consider the most important thing for you at this time. Do you need to free up cash each month, or keep the overall cost to a minimum? The answer will be very personal to you.

There are pros and cons to taking out a personal loan to deal with your debt:

Pros

• Lower monthly payments
• One single payment if you move more than one balance to a personal loan
• Lower interest repayments if you choose the right loan
• The convenience of knowing that your rate will remain the same for a fixed period so that you can budget accordingly

Cons

• Extending the time it takes to clear your debt will add to the overall cost
• You may not have the flexibility to pay off your debt early, or make overpayments without penalty should you wish
• You may incur fees if you use a personal loan to settle debts that have an early repayment charge.

The term of the loan will depend on what you need to achieve - if monthly payment reduction is your initial need, then a longer loan might be beneficial, and you can always reassess this further down the line if you need to, providing there is no penalty for paying off the loan early.