It’s said that 3.3 million people in the UK are saddled with ‘persistent debt’ on their credit cards. These are the people who, according to the Financial Conduct Authority (FCA), have paid more in interest and charges than they have been able to repay their borrowing in an 18 month period.
The issue here is that these customers are profitable for credit card companies, allowing them to ‘earn’ big sums through lending relatively modest amounts.
The FCA wants lenders to do more than sit back and watch the profits stack up and is calling for a series of measures to help customers clear their debts – including cancelling interest and charges in the most extreme cases.
While it will be interesting to see how these changes do pan out, in the meantime it pays to have a strategy to avoid becoming one of those 3.3 million people in persistent debt (or to get yourself out of this).
Here are some top tips to make your credit card debt more manageable:
Ask for advice
It’s important to seek advice from others. Friends and family will have tips and tricks to pass on to you and, if you’re in trouble, you are able to call on the expertise of a debt adviser to point you in the right direction. Don’t suffer in silence, reach out and take the support available to you.
Never just pay the minimum
While it might be tempting to simply make the minimum repayments on your credit card debt to avoid having to make big payments this will store up problems for the future. The BBC notes that a customer who borrows £3,000 on a credit card with a 19% APR who only ever makes the minimum repayment (starting at £74) would take 27 years and seven months to pay off their debt. In that time, they would have paid £4,192 in interest. Setting the payment at £108 would wipe off the balance in three years with £879 interest. Even just a small amount over the minimum is an important step towards chipping away at your total debt.
The BBC notes that a customer who borrows £3,000 on a credit card with a 19% APR who only ever makes the minimum repayment (starting at £74) would take 27 years and seven months to pay off their debt. In that time, they would have paid £4,192 in interest. Setting the payment at £108 would wipe off the balance in three years with £879 interest. Even just a small amount over the minimum is an important step towards chipping away at your total debt.
Don’t feel the need to use your maximum
All credit cards come with a limit setting out the maximum amount of money you can use. It’s important to treat this as a limit and not an ‘allowance’. If your card allows you to spend £3,500 but you only need to spend £1,000 then there’s no need to suddenly make plans for that extra money – you’ll only be left counting the cost in the long run.
Don’t be late
If you don’t make your monthly payments in time then your credit card debt will soon spiral out of control. You could face fees and charges, higher interest rates and even see your credit rating suffer. As a result, why not set up a direct debit to come out with plenty of time to spare? It’ll be one burden lifted from your shoulders.
Don’t take it out with you
It can be sorely tempting to rely on your credit card when you’re out shopping but if you know you’re likely to cave in and ‘put it on the plastic’ then don’t even allow yourself the temptation. Leave your card locked up in a safe place and you won’t have the option.
You don’t have to leave a big lump sum on one credit card – you can transfer the balance to another card to get more favourable terms. This is often a good idea if you took out a card that had an interest free introductory period. Once this period is over it might pay to look for another card to move your money over to, with the chance for another interest-free period or maybe a good interest rate. Shop around for a deal and you can save hundreds of pounds.