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Monday, 7th July 2014
Help and advice for credit card debt – Five top tips
With 59 million cards out there, covering, 50 million accounts, 66% of which are active (i.e. have an outstanding balance*) it is no surprise that some of us experience problems repaying them. Redundancy, illness, separation of a relationship or even an unexpected bill can put a strain on our finances, but help is at hand if that credit card debt is getting out of control with our five top tips.
What is best for you depends on your circumstances and the ability to pay so if the answer is not in this guide, don’t panic, speak to us as we may be able to find other debt solutions to help you best manage your debt. You will be surprised at how many there are and how they might just work for you. *Figures from The Money Charity June 2014
First of all, is your credit report accurate and up to date?
When you apply for a job you tidy up your CV but when you apply for credit you rarely think about tidying up your credit report-it only dawns on you once you have been turned down. We are mentioning this because of the credit card balance option detailed below.
It is always important to know what is on your credit file as some of the data could be inaccurate or false which could impact on your future credit applications so to be successful in getting on top of your debt it will help if you have a reasonable credit file.
You can view your credit report for free by visiting the following; See my credit report for free
Would you consider a credit card balance transfer?
If you are considering transferring your credit card balance to another card provider at 0% interest ask yourself, ‘am I really going to get a good deal?’ In an increasingly competitive credit card market companies need to maintain their profits and they do this even with 0% balance transfers.
To transfer a balance you will be charged anywhere between 2% and 5% by the new card provider. As an example of the cost if you had a £3,000 balance transfer at the rate of 3% then this will be £90 you will have to pay, this is often referred to as an ‘admin fee’. It is quite costly if you have a small balance which you intend to clear quickly, in which case you could consider going for a ‘short term no balance transfer fee’ deal. For large amounts it is important to have a long period on the 0% rate and then the balance transfer fee becomes less significant. The better your credit rating the greater your chances of being accepted for a balance 0% transfer.
Can you increase you monthly payment on your credit card?
Of course, in an ideal world the best way to use a credit card is to pay off the balance every month so that the debt is cleared but if this is not possible then try and pay off as much as you can each month, preferably not using the credit card in the meantime!
Just paying back an extra £10 per month can save thousands. For example, your credit card debt is £2,000 with the interest rate of 17.2% and you are paying the minimum £29. On this basis it will take 314 months to clear and you will pay back a total of at £8,478 (more than 4 times you borrowed) over 26 years. If you just added £10 to the monthly payment then it will come down to 94 months (7.83 yrs) and you pay back a total of £3,666. Source ThisIsmoney.
Can a debt consolidation loan help me reduce my credit card debt?
Some borrowers consolidate their debts with a personal loan. This means replacing a number of loans and or credit card debts with a new single loan from the bank, for example with one monthly payment instead of several. This payment can often be lower as the repayments are usually spread over a longer period, 36 months or 60 months which then gives the borrower more chance to manage and pay off their debts. It is especially useful for consolidating credit card debts which usually carry a very high interest rate, provided the personal loan is a competitive one. However, as a result there is the potential for the total repayments to be greater over the longer term.
Some borrowers actually consolidate their debts in their home through either a re-mortgage or secured loan. Be very careful with this as you are voluntarily changing the status of your unsecured credit card debt to secured and could actually pay back a lot more than you think over the duration of the loan.
Join a Credit Union
You could think about joining a Credit Union and raise a sum of money at a far lower interest rate than your current card provider is charging you.
Credit Unions are financial co-operatives owned and controlled by their members. They offer savings and great value loans plus they are local, ethical and they know what their members want Credit Unions now boast a membership of 1 million.
Interest rates for loan repayments can vary between 1 - 3 per cent per month although there’s a cap on the amount of interest they can charge on their loans of 3% a month or 42.6% a year APR. This means that if you borrowed £1,000 at 1% per month over a year then you would pay back £1,067, i.e. £67 interest, just over £5 per month. You may find some unions vary the interest but it must not be more than 3% per month. Some will have their own loan calculator on their website which details exactly how much your payments are for your selected repayment period. It’s that flexible!
A further upside of Credit Unions is that they often lend smaller amounts of money, over flexible periods of time, than your High Street bank would consider for instance small loans of £50 to £3,000. Show me how to find my nearest Credit Union
Still struggling with Credit card debt and can’t do any of the above?
If you are still struggling to pay your credit card debt then either speak with your credit card provider or get that important debt advice. We have a list of the not for profit debt advice agencies here at free debt help / advice agencies, they will not charge you fees for debt options.