Debt advice: dealing with credit card debt
When it comes to debt, credit cards can be a particular worry. With the interest rate on credit cards typically standing somewhere between 12% and 19%, failing to repay your balance on time can often prove costly.
How to manage credit card debt
With credit card debts, the first rule should be to make sure that you always make your minimum payment. Most credit card companies charge around 2% to 5% of the balance on your account (usually at a minimum of £5) per month.
However, because paying the minimum each month could mean the debt takes longer to pay off, it`s advisable to pay more than this. In general, the more you can pay off at any given time, the better. This is because the relatively high APR (Annual Percentage Rate) means that carrying a balance on your credit card will cost you quite a lot in interest.
In fact, the interest you are charged on your credit card will be calculated based on the balance at the end of each month - so providing you can repay your full balance before that date, it`s actually possible to use your card without paying any interest at all.
What if my credit card debt gets too big?
Making minimum payments each month is all good and well, but if your balance gets so big that it will take a long time to repay, you will need to take action to prevent it from becoming unmanageable.
For example, a 3% minimum charge on a £300 balance (£9), might seem manageable, but on a £3,000 debt (£90), it can become a lot more difficult to keep up.
Switch card provider
Many credit card providers attract new customers with an interest-free period which can often last over a year. This means that you can shift your balance to your new card provider (often for a fee of about 3% of the balance), and in theory you can leave it there until the interest-free period is over while only making the minimum repayment each month.
However, you should only treat this as a short-term solution, since you will not be reducing your balance significantly in this way. It is often a good idea to use the money you have saved on interest payments to repay your debt more quickly.
Use savings
Although it may go against some people`s financial instincts, using savings to pay off debt can save a significant amount of money. This is because the interest you will make on your savings is typically a lot lower than the interest you will pay on your credit card debt. Once your debt has been paid off, you can start saving again.
Get debt advice
If none of the above can help - or if you simply want a few words of advice - then getting debt advice is essential. A good debt adviser will recommend an appropriate debt solution that can help you to reduce your debts as effectively as possible.
For more information on a range of debt solutions, call one of our expert debt advisers on 0800 195 2911.