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How to pay off your debts

Which? explains the steps you can take to get back in control, from paying less interest on credit cards and loans to finding out about the benefits you can claim
Ian AikmanSenior researcher & writer

Is your debt a problem?

Debt isn’t always a problem and most people will have some form of it, whether that’s a mortgage on their property, a credit card, student loan repayments, or an overdraft on their current account.

If treated with care, debt can actually be useful: very few people can afford to buy a home without a mortgage. However, if a debt is left to spiral out of control, it has the potential to take over and destroy lives. 

Problem debt vs managed debt

If your total debts (excluding a mortgage) add up to more than you earn in a year, you don’t quite know where or why you have these debts, or you’re struggling to repay them, you may well have problem debt.

If you have debts that you pay off each month and don't exceed your yearly earnings, then you probably have managed debt.

But bear in mind if you ever start spending more than you earn and using credit cards or loans to fill the gap, your managed debt could quite quickly get out of control.

Think of it like a beautifully kept garden: with regular weeding, watering and maintenance it’ll remain pretty, but after a few weeks or months of neglect it’ll become overgrown and wild.

In this guide, we'll take a look at a range of tips that might help to keep your debt under control. If you are facing problem debt, skip to the how to tackle serious debt problems section for some of the actions you need to take.

The tips are in order of things that might be easier to tackle first.

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Getting started: take stock and plan

Find out where you stand

It can be tough to face up to your financial situation, but it's an important first step. 

Start by creating a list of all your credit card, store card, overdraft, buy now, pay later (BNPL), loan and mortgage debt. Then check how much you owe on each and what you're currently paying each month. 

Do a budget and reduce your outgoings

A household budget is a plan that summarises your earnings and spending habits, so you have a clear idea of where your cash is going and where you can make changes to reduce outgoings and boost the money you have to pay down your debt.

If you stick to it, a budget plan will help you make sure you don’t fritter away more than you earn and potentially help you work your way out of debt.

  • Find out more: how to budget - follow our step-by-step plan to get your finances under control

Check your credit report for free

Checking your credit report is an important part of maintaining your financial health. It'll allow you to pick up on any mistakes – or even fraudulent applications – that could hinder your chances of getting credit. 

Credit reports are compiled by credit reference agencies. The three main agencies in the UK are Experian, Equifax and TransUnion.

You have the legal right to access your credit report for free. The data in your credit report may be hard for you to understand, but you can use services from the likes of ClearScore and Credit Karma, which help to simplify the information and give you a credit score that indicates how lenders are likely to judge you.

Improve your credit score

If you find your score is low after checking your credit report then there are ways to improve it.

Registering to vote and ensuring your rental payments count are just a few of the ways you can easily improve your score.

Pay off debt before saving

While it's good to have a financial cushion for use in emergencies, there's little logic in having savings if you also owe money on an expensive credit card or overdraft.

The rates available on the best instant-access savings accounts are significantly lower than the average interest rate on a credit card.

Using your savings to pay off your borrowing could save you hundreds of pounds a year in interest charges.

Separate debts and savings to avoid them ‘setting off’

If you have debt and savings with the same provider, it has the right to ‘set off’ and use money held in your current or savings account to pay off debt such as a credit card or personal loan.

While it’s unlikely to happen, it can, especially if you’re juggling your debt repayments, and would have a big impact on your personal cash flow.

The best way to avoid it is to move your savings to a different financial institution (savings are usually easier to move than debt). 

Take care of your mental health

Approximately one in four people in the UK will experience a mental health problem each year and worrying about debt or money can exacerbate the problem.

A Which? Money investigation in 2021 explored the connections between money and mental health. The good news is there are steps you can take to improve the situation you’re in, even if you currently feel unable to take even the tiniest of steps. 

  • Find out more: mental health charity Mind has a wealth of useful information and a supportive Side by Side community.

How to take control of credit card debt

Switch to a 0%-balance transfer credit card

If you're paying interest on credit card debt, think about switching your balance to a 0%-balance-transfer deal – the best deals currently offer up to 28 months interest-free.

If you’re in a trusting relationship and one of you is struggling with debt, some cards allow you to shift your partner's credit card debt to you to pay off.

Be aware of minimum credit card repayments

The minimum repayment is the least you must pay back on your credit card each month to avoid a penalty. Of course, if you only ever pay the minimum it’ll take you far longer and cost you more to pay back what you owe.

It’s not always a bad thing to pay the minimum, especially if you’re struggling for cash in a particular month. However, if you make it a habit you’ll struggle to escape the debt trap.

If you only make the minimum payment on your credit card, not only could it take you years to repay the full balance but you may also be damaging your credit score as lenders may view this as you struggling to repay your debt.

  • Find out more: you can use our credit card repayment calculator to work out how changing your monthly repayments can impact how long it takes to pay back your credit card debt.

Reject increases in your credit card APR

If you pay off anything less than the full amount on your statement or withdraw cash from a cash machine with your credit card, you'll normally be charged interest by the card company.

If your credit card company decides to increase your interest rate, it must contact you at least 30 days beforehand to give you time to decide what to do. You should be given 60 days to reject the hike, cancel the card and pay back what you owe at the old rate.

How to take control of loan debts

Cut existing loan costs

It may be possible to swap your personal loan to a provider that charges a lower rate of interest although you’ll need to crunch the numbers to see if it’s worth it.

You’ll have to call your existing lender and ask it for a ‘settlement figure’ – which will be the total of the debt still owed plus a settlement charge for paying it off early.

You’ll then need to compare this figure to the interest rate on the best new loan you may be able to get and see if the savings stack up.

Should you consolidate your debts with a personal loan?

A debt consolidation loan allows you to merge lots of different debts into one loan, usually lowering your monthly repayments and meaning you owe a debt to just one lender.

However, if you’re having trouble managing your current debt repayments, consider that you might also have issues keeping up repayments on the new loan.

Always take free debt advice when making a decision to take out one of these loans. 

Beware secured loans 

A secured loan is one where the money you borrow is secured against an asset, typically your home. A mortgage is the most common example of this type of loan.

While a loan of this type is relatively easy to obtain (if you have a secured asset such as property to put up against it), and you can often borrow large amounts, you should be very wary as you can lose the asset if you can’t keep up with the repayments.

Explore credit union personal loans

There are more than 500 credit unions (financial institutions owned and controlled by its members) in Britain, so almost everyone has access to one. 

Credit unions offer very competitive rates of interest on personal loans of up to about £3,000 and are happy to offer much smaller amounts. Interest is charged on the reducing balance of the loan, which means if you can repay it weekly, you’ll pay less interest overall. 

Loans from credit unions are generally cheaper than loans from most other providers for smaller amounts and do not incur setup fees, administration costs or early redemption fees.

Many credit union loans, for example, cost 1% a month on the reducing balance of a loan (an APR of 12.7%). By law, the amount of interest charged by a credit union can be no more than 3% a month (an APR of 42.6%).

Avoid payday loans

A payday loan, is, as its name suggests, a small loan designed to tide you over until your next payday. 

While it might be tempting to take out a payday loan if you’re desperate for cash, it’s a very expensive option.

If you’re struggling, see if you can dip into your authorised overdraft, or see what your local credit union is offering.

How to take control of mortgage debt

Switch to a cheaper mortgage

Mortgages are secured debt. This means when you take out the loan to buy your home, you offer your property as security.

As a form of debt, they’re also much more of a long-term commitment. That doesn’t mean you need to stick with the same provider for the duration of the mortgage. In fact, if you’re coming to the end of a fixed-term deal or you’re unhappy with the standard variable rate you’re paying then remortgaging could be a good way to lower your monthly repayments.

Ready to get a mortgage?

Find the right mortgage using the fee-free service provided by L&C Mortgages

Compare mortgages

See if you’re eligible for mortgage interest support

If you’re on certain benefits such as universal credit or pension credit, you may be eligible to apply for government help to pay your mortgage interest.

The government will pay the interest on up to £200,000 of your mortgage, direct to your mortgage lender. However, they won’t make capital repayments. But bear in mind the loan needs to be paid back from equity in your house when you come to sell.

Boost your income: make some extra money

Check your tax code (you might have overpaid tax)

Make sure you check your tax code each year. If you’re employed you can find the code on your payslip. Most people will have the tax code 1257L.

Although that’s the basic code for the tax year 2024-25, it’s possible you might or should be on a different code. If that’s the case you may have under or overpaid tax and may be due a refund (or have to pay something back).

Check if you’re eligible for marriage allowance

If you’re married, one of you is a basic-rate taxpayer and the other a non-taxpayer then you could be sitting on free cash from HMRC. 

Marriage allowance, which has been around since April 2015, allows the lower earner in a couple to transfer a portion of their personal allowance to the higher earner – a claim that can also be backdated by up to four tax years.

Sell old furniture, clothes and toys to make some cash

Look through your wardrobe for clothes you rarely wear or hunt down the toys any children or grandchildren have grown out of. As long as they’re in a reasonable condition, you may be able to make some money by selling them.

Our research has found that sellers rate Vinted as the best place to sell pre-loved items, followed by Facebook Marketplace, Gumtree and eBay.

Reclaim money in a forgotten bank account

There are billions of pounds lying unclaimed in dormant bank and building society accounts, investments, pensions and life insurance policies.

If you think you may have lost a bank or savings account, there are free tracing schemes to help you recover lost money. For investments, pensions and insurance policies you may have to pay a fee to search.

Reclaim bank charges 

If you’re in financial hardship then the last thing you’ll want is an excessive bank charge for breaching your overdraft. Fortunately, if you think a fee was unfair, you may be able to claim it back.

You’ll need to write to your bank yourself, although if they reject your claim you can take it to the Financial Ombudsman.

Reduce outgoings: make savings where you can

Learn how to haggle

This may have less of an immediate impact but could go some way towards reducing your outgoings. 

Haggling may not come naturally to most of us but applying some simple ideas could see you make big savings on household bills such as insurance, mobile phone contracts, broadband and energy.

Switch your insurance to cut your costs

Remaining loyal to any one insurer year after year will only hurt your pocket. Insurance deals, whether it be for your home, car or annual travel policies could be cheaper if you shop around.

So you should make sure you’re not unnecessarily increasing your outgoings by spending more than you need on insurance. A few weeks before your policy comes up for renewal, compare quotes for the best deal that works for you.

  • Find out more: insurance advice guides - whatever you’re looking to insure we explain how to find the best deals

Join Freecycle (and similar) for free furniture and homeware

If you need furniture or homeware but can’t afford it in your current budget, you may still be able to get it for free.

Websites like Freecycle or Freegle have searchable recycling communities (just enter your postcode to find your nearest) where people post ‘Offered’ and ‘Wanted’ adverts. 

While most will require you to collect, it can be a great place to pick up anything from armchairs to washing machines.

Consider using a food bank

Food banks can provide emergency food supplies. A typical food parcel will contain at least three days of tinned and dried food. 

You can search for your local food bank online, but to visit it you’ll need to be referred by a professional, such as Citizens Advice, a doctor or a social worker. 

Drop a brand when buying groceries

One way to have a positive impact on debts is to cut down spending where you can in other areas of your life.

An easy way to do this is to ‘drop a brand’ when buying groceries. This doesn’t mean ditching your favourite supermarket (although it doesn’t hurt to try a ‘budget supermarket’ if there’s one local to you) but means choosing a lower-level brand than you typically opt for.

If you usually buy branded products, then try supermarket own-brand. If own-brand is more your style, then give the value range a whirl.

Our taste tests have found that own-brand ranges can actually taste better than their branded counterparts, so you might be doing your taste buds a favour too. 

Check for old direct debits and standing orders 

It’s entirely possible you’re paying for something that you’ve forgotten about such as an unused gym membership (aka a failed New Year’s resolution), insurance for something you no longer own, or a paid TV subscription.

Go back through a year’s worth of bank statements and identify any (regular) payments that don’t look familiar. Once you’ve worked out what they were for, see if any can be cancelled and check your original contracts.

Reduce your council tax payments

If you’re paying council tax you may be able to reduce how much you pay.

For example, if you’re living alone, are disabled, or on a low income, there are council tax discounts available to you.

You can also appeal your council tax if you believe the bill is wrong, or believe that your home has been placed in the wrong council tax band.

Check what grants and benefits you can get

Get help with your energy bill 

Most major utility providers can provide some help to people on low incomes. The British Gas Energy Trust helps anyone, not just customers of British Gas, who are struggling with their gas and electricity debts. 

Other energy providers including Scottish Power, Ovo Energy, Eon and EDF offer grants to their own customers who need financial assistance.

Even if your energy provider doesn’t provide grants, it may be sympathetic to changing your payment plan if you’re struggling to pay your energy bills.

  • Find out more: Citizens Advice has a guide with links to the various grant options available

Are you eligible for tax credits?

Tax credits are state benefits that provide extra money to people responsible for children, disabled workers and other workers on lower incomes.

There are two types of tax credits: child tax credits and working tax credits. 

Tax credits are tax-free and you don't have to be paying National Insurance or tax to qualify, but they are means-tested. So, whether you qualify and how much you get depends on your household's income and circumstances.

  • Find out more: read our full guide to tax credits to find out if you qualify and how much you could get

Check if you can get pension credit

If you're less well off, there is help available to you to boost your state pension. This comes in the form of pension credit.

Pension credit is awarded to you based on your earnings (known as a means-tested benefit) and tops up your basic state pension. 

Around four million people are entitled to pension credit but, according to the government, a third of those fail to claim it. 

Are you claiming child benefit?

Child benefit is a payment made to you by the government if you are responsible for a child, and you don't necessarily need to be the child's parent. If you qualify for it, it could be worth more than £1,000 a year for your first child. 

Your child needs to be either under 16 or under 20 and in an approved form of education or training (higher-education degrees, for example, are not approved). It's only possible for one person to claim child benefit for a child. 

Check if you are eligible for benefits

You might be entitled to government benefits, such as universal credit, without being aware of it. Even if you’re working and don’t have health issues or children there are benefits potentially available to you.

The best way to get an idea of how much you may be able to claim is to use a free and comprehensive calculator.

  • Find out more: independent benefits organisation EntitledTo offers a useful and free calculator so you can work out what you may be eligible for 

Could you be eligible for a grant?

If your household income is low there are a whole host of grants available from charities and the government that could help support you. These may include help with paying utilities, keeping your home warm, or even grants for education.

Get help if you’re in hardship

If you need to pay for certain important costs and are claiming some benefits such as income support or pension credit you might be eligible for a budgeting loan.

This will be small; only up to £812 and will be paid back as a deduction from your benefits.

You may also be able to get support from your local council. Use the search engine provided by charity Lasa to see what’s available in your postcode area. 

  • Find out more: there’s a helpful list of financial support you may be able to get from this government website

How to tackle serious debt problems

Talk to your lender 

If you’re struggling with making repayments on any kind of borrowing, whether that’s a credit card or loan then it can seem impossible to get on top of those debts.

If you think you might default or miss a payment, the best thing to do (however uncomfortable the thought), is to contact your lender to explain the situation. It may be sympathetic and arrange an alternative repayment plan with you.

Consider an IVA

An IVA (individual voluntary arrangement) is a legally binding contract between you and anyone you owe money to agree to pay off your debts to them over an agreed period of time. 

It has to be set up by a qualified insolvency practitioner and the people you have debts with (your creditors) must agree to the plan.

However, IVAs are not always the right choice for people in problem debt, and can end up being expensive. In 2022, a Which? Money investigation found dodgy 'debt advice' firms selling IVAs to people who didn't necessarily need them via Google ad placements.    

  • Find out more: Citizens Advice has a useful guide to how an IVA works and how to figure out if it’s right for you.

Consider a debt relief order

A DRO (debt relief order) is a way to give yourself some breathing space, as while the order is in place you don’t have to pay off most debts and any included debts will be written off after a year.

There are some pretty tight eligibility criteria though, including not owning your own home and having assets of less than £1,000 and disposable household income of £50 or less each month.

You also can’t get a DRO if you’re going through an IVA  or bankruptcy.

  • Find out more: Citizens Advice has a useful guide to how a DRO works and how to get referred for one.

Consider bankruptcy

If you absolutely can’t pay off your debts then bankruptcy might be for you. It costs £680, but means any money you owe will be written off. 

It also means that anything you own may have to be sold to pay off debts – this can include your home, car or any luxury items.

You should make sure you get free, independent debt advice before opting for bankruptcy as it can have a long-term impact on your life.

  • Find out more: Citizens Advice has a useful guide to how bankruptcy works and how to figure out if it’s right for you.

Get free independent debt advice

There are many organisations and charities that offer free, impartial debt help and advice. Some advice may be face-to-face, some over the phone and some online.

If you can't afford the repayments on existing debt, it's better to get free independent advice rather than dipping further into financial trouble by using fee-charging debt-management companies.  

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