Dealing with credit card debt
Credit card debt can seem like a black hole: with high interest rates, the amount you owe can escalate quickly and finding a way out may seem impossible.
When it comes to paying for purchases, credit cards should be used with caution and should be a last resort if you’re struggling financially – there are cheaper ways to deal with debt, for instance personal loans tend to have a lower interest rates.
However, if you do find yourself struggling to pay off increasing debts on your credit card, here is some advice for regaining control and tackling your balance.
Don’t ignore your debts
The first thing you should do is tackle the problem head-on: ignoring your debts will only make it worse. Because credit cards have high interest rates, failing to make payments could lead to a situation where you end up paying interest on the interest you already owe.
Prioritise credit card debts
Next you need to prioritise your credit card over any other debts or outgoings. It might seem like taking a step backwards to move forwards, but reducing repayments on other debts such as loans and overdrafts can free up some money to bring down your credit card balance. Once you’ve paid off your credit cards you can use the money to pay off your next highest interest loan and so on until you become debt free.
It also helps to create a spreadsheet of your monthly outgoings, as you may be surprised to find out where you can save money. Shop around to see if you could purchase gas or electricity cheaper from another provider, and contact your mobile phone contractor to discuss cheaper tariffs.
Record how much you spend everyday
Once you’ve minimised your monthly bills, take a look at how you can save money on everyday expenditure. Keep a diary for a week to see exactly how much money you spend on a daily basis. The odd takeaway coffee here and magazine there might not seem like a great expense, but added together these can have a significant impact on your outgoings. Work out where you can cut corners to live more cheaply and put these savings towards your monthly credit card repayments.
Sell your stuff
Unlike fixed term loan repayments schemes, there is no set limit to the maximum amount you can pay off your credit card each month. Have a look around your home to see if there are any valuable items you no longer use that you could put up for sale on an internet auction site or declutter your cupboards and hold a car boot sale. Use all the profits from these sales to make a payment on your outstanding credit card balance.
Next time you find yourself with some loose change in your hand, pay it into your bank account and transfer that money straight to your credit card bill. A few pence might not seem like much but every little helps.
Boost your income
You might also want to consider increasing your monthly income by getting a part-time job or advertising your services for casual labour. A morning paper round, couple of shifts in the local pub or setting up a dog walking service can supplement your finances and give you more cash to put towards your debts. Be aware, however, that any income gained from self-employed labour could be subject to tax – check out the HM Revenue & Customs website for further information.
Snowballing your debts
If you have debts on more than one credit card, start by paying the smallest balance off first. This might not seem logical, but it will help you to get on top of your debts and keep you motivated. Keep paying the minimum payments on your other credit cards while pouring all your energies into clearing the one with the lowest balance. Once this has been paid off, transfer your attention and finances to the next one. This is what’s known as the ‘snowball effect’, as by the time you tackle your largest debt you will have alleviated the financial strain of your other credit cards, giving you more money each month towards paying it off.
Get rid of your credit cards
Finally, when you’re debt free, cut up your cards. Generally speaking we advise you to think carefully before closing a credit card account because it can have a negative effect on your credit rating, however chances are if you’re in major credit card debt your score will be fairly poor anyway. By cutting up your cards you won’t be tempted to use them when times are tough or you have your eye on a new purchase, and you’ll break the cycle of spending that got you into this situation in the first place.