How to cut the cost of debt (and stay out of debt) in 2026

After encouraging improvements in the credit card and loan market in 2025, there are plenty of opportunities for those wanting to cut the cost of their debt in 2026.

Almost one in three (29%) people believed they would end 2025 in debt, owing an average of £5,600, according to research from Tesco Bank.

For those going into the new year with existing debts, it’s worth seeing if you can consolidate them and cut costs, particularly as areas of the market have improved over the past year.

Notably, for those with credit card debt, the average length of a 0% balance transfer period rose to a three-year high of 585 days at the start of December 2025, data from the Moneyfacts UK Unsecured Lending Trends Treasury Report revealed. This compares to an average introductory 0% period of just 512 days in December 2024.

Even more encouragingly, Barclaycard and Tesco Bank increased their 0% balance transfer periods to a market-leading 36 months in the last couple of weeks of 2025, meaning eligible borrowers could pay off their debt over three years without incurring any interest charges.

How to use a balance transfer card

You can transfer debt from an existing credit card that charges interest to a specialist balance transfer card with an interest-free period (usually for a percentage fee). Interest won’t be charged for the specified term so, as long as you clear your balance in full before the 0% offer expires, you won’t need to pay any interest. However, you will still need to make at least the minimum monthly payments and keep to the terms of the card.

Bear in mind that the 0% balance transfer offer you are eligible for will depend on your credit history and financial situation.

“2025 has been a fruitful year of activity among credit card providers. The market has seen a stark improvement to interest-free [balance transfer] terms, now around 70 days longer on average than a year ago (December 2024 versus December 2025),” Rachel Springall, Finance Expert at Moneyfacts, explained.

However, Springall points out that it isn’t all good news for borrowers as the average balance transfer fee rose from 2.44% to 2.51% over 2025. This means that anyone transferring a debt of £3,000 would need to pay £75.30, but many of the most competitive balance transfer deals may charge an even higher fee.

Will personal loan rates fall in 2026?

Borrowers can also use a personal loan to consolidate and cut the cost of their debts. Although they don’t offer an interest-free period (like balance transfer cards), personal loans can be a relatively cheap form of borrowing and may appeal to those who prefer to have a fixed repayment plan.

Moreover, personal loans can be used to consolidate a range of debts, including overdrafts and other loans, not just credit cards.

Personal loans may be an even more popular option in 2026 as interest rates have fallen across most tiers over the past year.

For example, the average rate on a £5,000 loan with a three-year term dropped from 11.2% to 10.7% between December 2024 and December 2025, while the average rate on a £10,000 loan with a five-year term fell from 8.4% to 8.2% over the same period.

“Borrowers will no doubt be yearning for more good news moving into 2026, and it is hoped that interest rates should fall further thanks to recent cuts to the Bank of England base rate,” Springall commented.

“However, the pricing for unsecured lending is more in tune with the risk appetite of lenders,” she added.

Discover the latest personal loan rates

Considering a personal loan? Visit our personal loan chart to compare options and see the latest rates.

You can also use our loan calculator to help you work out how much you can afford to borrow.

Tips for staying out of debt in 2026

One of the main ways to avoid getting into debt is to build up sufficient money in savings, if you can afford to do so. For example, if you have an emergency fund (ideally worth several months of essential expenses) that you can dip into to cover any unexpected expenses, you may not need to borrow.

Similarly, if you’re planning a large purchase or have a major event on the horizon, such as a wedding or a holiday, it’s a good idea to start saving up for it as soon as possible. Using your own savings will be cheaper than borrowing money and repaying it back with interest.

However, sometimes borrowing on a loan or credit card is unavoidable. But this doesn’t mean that it needs to be expensive.

For example, if you’re making a large purchase, see if you can use a credit card with a 0% introductory period to cover the cost as you won’t need to pay interest (as long as you pay off the balance in full before the end of the interest-free period).

The average interest-free purchase period on credit cards stood at 291 days at the start of December 2025, up from 262 days one year earlier, which means borrowers could spread the cost of their spending over a longer period.

But it’s important to think carefully before taking out credit to make sure it’s the most suitable option for you.

“It will be essential that new and existing borrowers take time to check their credit report before they apply for a credit card or loan, and make sure they have a steadfast repayment plan in place to become debt-free,” Springall explained.

Borrowers may also want to see if they can improve their credit score before applying, as this could help them access more competitive deals.

How to improve your credit score

Whether you’re planning to apply for credit in 2026 or not, it’s a good idea to check your credit report to see if there are ways you can improve your score. See our guide for tips on boosting your credit score.