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Consolidate your debt

While the economic doom and gloom persists, many of us are feeling the pinch. Unemployment is at 2.67 million , and heating bills and the cost of feeding the family continue to take their toll on our personal finances. As a nation, by the end of 2011, outstanding personal debt stood at £1.451 trillion and average household debt (excluding mortgages) was £7,948 .

In the struggle to make ends meet, some of those particularly feeling the strain are resorting to drastic measures to pay the bills. A vast array of websites promising struggling consumers access to quick credit, commonly known as ‘payday loans’, have sprung up. While they may offer convenient credit, the loans come at hefty rates of interest – some of the companies charge staggering APRs of more than 4,000 per cent. While the loan providers argue that too much emphasis is placed on the high APR as in reality money is usually borrowed for far shorter periods of time, payday loans are still a very expensive way to borrow money.

Others are relying on their credit cards. But if you have a large balance on your card and are unable to clear it each month, depending on the card you have, you will be likely to incur interest charges. When money’s tight it’s understandable that you would consider just making your credit card’s minimum interest payments, but this isn’t sustainable long term as your debt isn’t actually being repaid. Instead it is increasing. Some credit cards offer 0 per cent interest on purchases, so if you do need to use a credit card to finance your spending over the short to medium term, you could use one of these cards.

Having significant personal debt puts your family finances at risk. What if you lost your job or were unable to work? Would you be able to continue to pay your bills? If you are concerned about your debt, it may be worth considering turning to a bank loan, a debt consolidation loan, or if you are a homeowner a home equity loan, to clear all your debts at once.

If you have debt with different providers, debt consolidation loans will pay off your existing debts and transfer what you owe into one loan, meaning you only have to make a single monthly repayment. The benefits of consolidating your debt include the possibility of reducing your monthly outgoings by paying a lower rate of interest. It is also more convenient to manage your debt, as you only have to deal with one loan provider. If you are not a homeowner, a traditional bank loan may also give you the ability to consolidate your debt.

However, if you are a homeowner with equity in your property, home equity loans could also help you to consolidate your debt. These loans allow you to borrow against the equity in your home and you can then use the money to consolidate your other debts. The home lender uses your home as security and because this means they are more likely to get their money back than with, say, unsecured loans, the interest rates they charge on home equity loans are often lower.

Spring is in the air and it’s a great time to tidy up your personal finances. Debt consolidation, a bank loan or a home equity loan could all help. But the key to keeping your finances healthy year round is to keep on top of your spending and make sure the same debt problems don’t arise again.

Failure to keep up loan repayments may result in any security being repossessed.

This article has been written for information and interest purposes only and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only. Links to third party websites are not an endorsement by us of products and services on such websites. You have entered a website owned and operated by and will be subject to their website's terms and conditions.

Issued by Barclays  Bank PLC. Registered in England. Barclays Bank PLC is authorised and regulated by the Financial Services Authority (FSA). Registered No 1026167. Registered Office:  1 Churchill Place, London, E14 5HP.

For further information about Barclays, please visit our website www.barclays.co.uk