Debt is inevitable for most people. Whether it’s student loans, mortgages, credit cards, or any other source, everyone finds a way to borrow and spend money they don’t have.
According to the Money Charity, the average household debt in the UK, excluding mortgages, was £6,020 in September and according to the BBC, average earnings in the UK were around £26,000 per year.
That £6k of debt, without taking into account interest, represents a significant portion of income from average UK citizens, meaning that it’ll likely take several years to pay off debt.
With bills for rent, utilities, student loans, etc. it may seem impossible and difficult to get a hold of your finances. Unfortunately, many turn to credit cards as a way to pay off debts, especially as credit card companies advertise zero percent interest.
0% interest rate credit cards may seem like a great way to save money and avoid paying interest. But credit card companies have to make profits from the offers.
How do they do it?
The truth is they benefit each time you move your balance to a credit card for a 0% interest rate offer, you’re hit with a 3% fee. So on an average debt of £6,020, that’s an additional £180 added to your credit card bill just for being their customer.
And not everyone who has a 0% promotional offer pays it off completely during the year. Most are still going to have more to pay off on their credit cards at the end of the 0% offer.
And how many do you think get around to changing their balance to another 0% offer card when that expires. Whatever debt you’ve paid off, you’ll now be paying a 19.1% interest on that balance, plus the 3% fee from the transfer! And the interest rate is where many end up paying more than they ever borrowed.
Imagine a scenario for someone who has a household debt of £6,020 on their credit card, on which they’re paying off with an average 19.1% annual interest rate.
They make the minimum monthly repayment of £156. Their interest accrues monthly on what they don’t pay off, and at that rate it will take at least 4 years and 10 months to pay off. The total interest paid to the credit card company will be £2,924 – 48.6% of the original balance. Credit card transfers may not be the best way to consolidate debt.
So what options to UK adults have?
Finance journalist Mike Naylor and Zopa combined their know-how to make a guide below on how to start the process of debt consolidation that provide other options outside of zero balance promotions.