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How to deal with credit card debt

Year on year spending on credit cards rises especially around Christmas time where putting the cost of the festive period on credit can be a big help for many families that would struggle otherwise. But what happens when the festive period is over and the substantial credit card bill hits the doormat come January.

Speaking to people dealing with all sorts of debt, big and small, every day we have some great tips to help you deal with your credit card debt and put yourself on the path to paying off what you owe.

Pay off the minimum in full each month

To avoid any further issues with your debt and to keep it at a manageable level, you should pay off the minimum payment amount in full each month at least. Underpaying or not paying your monthly credit card bill will usually see you facing an increase in your interest rate or incurring a fine which can tip the balance for many to make their debts unaffordable very quickly; it is likely also to damage your credit rating.

The best way to make sure you pay your bill on time for the right amount is to set up a direct debit from your current account. Also, if you can pay more than the minimum payment on your credit card a month, try to; it can help you to pay the debt off quicker and means you will incur less interest on the debt too.

Pay attention to APR

The APR is the percentage of interest charged on your debt over the course of the year. When looking for a credit card, 1.5% a month could seem like a good and affordable rate for you but when taken into account over the course of the year, it soon adds up.

The interest is added on top of the debt you owe and each month or quarter is added again on top of the debt and interest, if you have not already cleared the previous interest. This is one example of how debt can spiral out of control for some people and is worth keeping in mind when borrowing.

Avoid payday loans and high cost credit

Taking out a payday loan or any sort of high cost credit facility to pay off your credit card debts may seem like a good idea but it can end up being more costly for you in the long run. Don’t exchange a manageable interest rate that credit cards tend to offer for an extortionate one by making sure you do your research before committing to one of these facilities.

Join your local credit union

If you do need to borrow money in order to pay off your credit card debt, you should go to your local credit union. The loans that credit unions provide are usually cheaper than loans other providers will be able to offer you. They also do not include set-up fees, administration costs or early redemption fees. Credit unions can only charge 3% a month in interest by law so rates may be lower than other options on the market.

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Improve your credit score

Look at your credit score to see what may be affecting it in order to improve your financial outlook. If it is just your credit card affecting it, then you can work on paying your debt down to get yourself back on track. If you have old debts, missing information or debts that have been wrongly included on your credit score, then this is something to work on to improve the outlook and give yourself a better chance of approval for any other sort of credit facility you may need in future.

Obtain advice

Whether you obtain advice from a debt charity or you get in contact with us, you will receive confidential advice from trained and knowledgeable staff. We have dealt with people in many different financial situations and we always advise our clients on the best outcome. If you are looking for more information on this subject, visit our dedicated credit card debt page.

Consolidate your debt

By transferring your current credit card debt to a 0% interest rate card (if you are eligible), it can help those managing to make their monthly payments but are struggling with the amount of interest they are incurring every month. By removing the interest, it can put you back on the path of paying down your credit card debt with an amount that works much better for you.

Be aware that a handling charge of around 3% may be charged for transferring your debt to another card. Pay attention to the length of time you can secure your interest rate for when you apply; make sure you give yourself the right length of time to pay back on a low interest rate for you.

Be aware of the ‘up to’ strategy

Some credit card providers on the market now state ‘up to 36 months’ with regards to their low interest rates. This means you may secure that rate for 36 months but you may not. If not, you will usually be told after the application eligibility check, how many months you are entitled to the low interest rate giving you the opportunity to decide if it is the right option for you.

Consider an insolvency solution if you are struggling to repay

If after trying the above and you are still struggling, it is advisable that you get in contact with us to discuss the insolvency options available and which one may be the best option for you. The options available are:

Debt Management Plan (DMP) An informal agreement between you and your creditor which can help you reduce your debt and acts as confirmation of payment.

Debt Relief Order (DRO) – This is suitable for low levels of debt when you also own a few assets. It helps to write off debt and it helps you to avoid bankruptcy.

Individual Voluntary Arrangement (IVA) A formal repayment plan protecting you from creditor pressure and allowing you to pay creditors with a monthly amount you can afford. 75% of your unsecured creditors (those you owe money to) by value need to agree on your IVA proposal for this to go ahead.

Bankruptcy When you can no longer afford to pay your debts and you no longer qualify for the above options, you may face bankruptcy. We can explain how this procedure works and its likely impact on you. In some cases, it is the best option depending on your circumstances.

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