Credit Card Debt

Credit card problems

In recent years credit cards have been a popular form of credit for many people. However, they have also played a pivotal role in debt escalation in the UK.

Relatively easy to obtain, credit cards provide instant access to extra cash, not to mention the temptation to spend beyond our means.

Britain owes more than £58.2 billion pounds on credit card debt alone, and according to the UK Payments Council, there are more than 64.4 million credit cards in circulation – that’s more cards than people!

Last year it was estimated that 1 in 4 credit card holders have been charged at least once for missed payments due to being unable to cope financially, forgetfulness or by not organising finances thoroughly enough.

How credit card debts cause difficulties

Credit cards are designed for convenience and short term lending – so you will notice that cards often come with higher APR rates than long term loans and mortgages. Previously, money supermarket website rates were typically between 15 and 20% APR; however they can be much higher.

Although credit card companies require a minimum repayment of around 5% of the outstanding balance, this will only keep your account up-to-date, not clear debts. This means interest and charges can be left to build up for a long period of time, which means your original debt could escalate quite substantially.

Credit cards can feel like free money – a bill that we worry about later. Because people do not physically hand over cash, the emotion to spending isn’t attached – making it easier to spend without guilt. It’s only later when the debt builds up or a statement is delivered that the realisation of the costs involved becomes clear.

Credit card debts can also lure you into a cycle of debt because as soon as you have paid off one amount, the card is still available for you to spend again.

Once you are struggling with credit card debts and have begun to miss payments, most card companies will impose less favourable terms and may even request that you pay back the entire balance – so it’s important you know how to manage credit card debt.

Clearing credit card debts

The important thing to remember about credit cards is that they are a short term lending solution, making them ideal for emergency situations – not everyday spending.

If you do make a substantial purchase, the best thing to do is to repay that debt as soon as you can – this could mean increasing your current repayment rate in the short term to avoid the credit card company making money from purchases through interest and charges.

How to manage credit card debts

If you want to clear debt, you may have heard about Credit card consolidation. This basically means consolidating your debts onto a card with low rates or 0% interest via a balance transfer.

If you have a large amount of credit card debt, we would recommend that you use a solution like a Debt Management Plan to clear these debts as this will enable you to repay creditors at a rate you can afford and you will not have to complete a credit check to qualify.

A DMP is suitable for all unsecured debts such as store cards, overdrafts and catalogue accounts – not just credit cards – so if you have a number of debts, you could work towards repaying all of them, rather than securing more credit just to clear one bill. What’ more, of 84% of debts managed we freeze interest and charges. which could help you repay your debts in a shorter period of time.

If you would like expert advice on dealing with debt, speak to us; we’ll be more than happy to help: 0800 096 1331.