How to Deal with Credit Card Debt

Carol’s Story:

“Originally I had just one credit card which I would pay off every month but one day I received an offer of another card from my bank which I took up. I always meant to cancel the other card because it had a higher interest rate but never got round to it.

“But I was actually pleased I had two cards when I bought my own place because I they came in useful for buying furniture and things I needed for the kitchen. I intended to pay them off straight away but then my mortgage payments got in the way.

“I kept up the minimum payments but by the time the interest had been added on, the balance was hardly coming down at all.

“Before I knew it I had to use the cards again because my income was getting squeezed and I went over the limit on both cards. Unfortunately, I went into a bit of a denial situation and missed a few payments. Next thing I knew there were penalty charges added on.

“I owed about £3,500 on the two cards and started to get really worried because I was going over my overdraft limit too. I knew something had to be done and I knew I had to pay off the debt as soon as possible.”

More than 30 million people have a credit card in the UK, and, like Carol, many of those have more than one.

It stands to reason, then, that credit card debt accounts for a significant proportion of the grand total of £1.1 trillion personal debt in United Kingdom.

Credit cards are an incredibly useful way to buy goods whether in store or online and the idea of paying for expensive items or holidays etc and putting off the day when you actually have to part with your own cash is very appealing, not to say tempting.

Unfortunately, temptation can get the better of you and before you know it, you have more credit card debt than you can handle.

CAN YOU HANDLE IT?

The most important question you have to ask yourself is: can you handle having a credit card(s) without letting your debt get out of control? Do you have a history of overspending where credit cards are concerned?

If that’s the case, the simplest solution might be not to have a credit card at all and just use a debit card or of course cash for all your transactions.

But if you can trust yourself not to spend irresponsibly with a credit card, it is still important to use it sensibly and it will help to follow some of the basic rules.

CHOOSE WISELY

There are more than 1,000 different cards to choose from so you really will be spoilt for choice, but you have to make the right choice. You should look further than the high street for the best deals as often it’s the bigger names that carry the bigger interest rates. Search on the internet for sites that compare different cards and their rates.

THE PAY-OFF

Without doubt the best way to use a credit card is to pay your balance in full every month. That way, you won’t have to worry about interest mounting up and also you can be sure you are not spending more than you can afford, thus allowing your debt to spiral.

Paying the minimum amount every month is no way to handle a credit card because it will take you literally years to pay off a relatively modest debt as the interest is allowed to mount up. Worse, of course, is paying nothing at all from month to month as you could also be charged penalty fees.

If this isn’t possible, then it is more important than ever to make sure you are not paying more interest than you need to, which brings us to…

PLAYING THE SYSTEM

You cannot have failed to notice the multitude of credit cards on the market offering a very tempting 0% interest rate. The downside of these is that the 0% interest only lasts for a limited period, after which you could find you are paying an excessively high rate.

There is a way round getting tied into unfavourable interest rates by this initially attractive proposition: once the 0% interest rate finishes, simply switch your balance to another card offering 0% interest for a limited period. And when that finishes… well, you get the message.

Even if you don’t want to get on the 0% interest merry-go-round, you should still assess the credit card market regularly to see if it would be worth your while switching your balance elsewhere. There is no point in paying extra interest when switching is so easy.

STORE CARDS

The best advice as far as store cards go is leave well alone. The interest rates these cards carry are ridiculously expensive when compared to ordinary credit cards. Sometimes they offer money-off incentives. If you are tempted by these, make sure you pay the balance in full every month to avoid paying the excessive interest.

IF YOU ARE STRUGGLING…

Tell the credit card company about it. Don’t just sit there and watch the unpaid bills drop through your letterbox. That way, the interest will just get bigger and the charges pile onto your original debt.

All reputable credit companies will be open to suggestion and willing to negotiate because they want to make it as easy as possible to recover the debt.

Enlisting the services of a professional debt counsellor can be beneficial for negotiating with your creditors – they can sometimes get the interest frozen and are experienced at securing more favourable terms for repayment.

As the conclusion to Carol’s story shows, it pays to change your attitude by taking advantage of the credit card companies rather than letting them take advantage of you…

“I took some advice and found out about being a ‘rate chaser’. Luckily my credit rating hadn’t really suffered yet so I was able to get a credit card with a 0% interest rate for the first six months. I immediately transferred the balance of my existing cards and cut up the new one.

“After budgeting exactly what I could afford to pay every month without overstretching myself, I arranged a direct debit to go towards paying off the balance.

“After six months, I simply found another card with 0% interest, ironically from my own bank, and did the same. I’m now on my third credit card with a limited-period 0% interest rate and have less than £300 to pay.”

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