Unlike other credit agreements, you can choose how much credit card debt to pay off each month. When struggling to meet outgoings, paying the minimum monthly payment each month seems like the perfect answer, but it isn't.
Credit Card Debt Under The Microscope
If a balance is £5000 with an 18% APR, paying the 2% minimum will mean that it takes 47 years 11 months to clear credit card debt. During that timeframe, a colossal £10,978 of interest will have been paid. The banks don't offer this facility out of the goodness of their heart.
How to Reduce Credit Card Debt
Nobody wants personal debt to continue indefinitely so take action before interest payments eat up a higher percentage of any available disposable income. There are a number of personal measures and debt solutions that can help alleviate financial difficulties.
- If savings are available, pay off as much charge card debt as possible. Earning 0.1% in a current account isn't any use when 18% APR is charged on the money owed. If savings aren't available, clear as much as can be afforded each month. This will reduce the term of any debt considerably.
- If missed and late payments aren't an issue, there are many card providers that allow consumers to perform a credit card balance transfer and enjoy 12 months of interest-free credit. In the example above, this would save £900 in interest payments. Use the money saved to reduce credit card debt.
- Never use credit card cheques or take out a cash advance as these attract a premium rate of interest. What's more, they will be the last to be settled by any payments. It's all in the T&C's.
- If a personal loan is available at a better rate of interest, use this to settle higher APR personal debt.
- If a credit card agreement was signed-up to before April 2007, it is worth checking to see if it constitutes a legal agreement under the Consumer Credit Act 1974. For example, the agreement might not be enforceable if the card provider increased the credit limit without the cardholder's authority.
How to Clear Credit Card Debt
There are several debt solutions available to struggling borrowers. These include an Individual Voluntary Arrangement, Debt Management Plan or Debt Relief Order. These work by either reducing monthly outgoings to a more affordable level or writing-off personal debt.
Don't allow credit card debt to continue indefinitely as it will only mean interest payments and further charges. Look for ways to gradually reduce the amount owed or write-off personal debt through a debt solution or legal process under the Consumer Credit Act 1974.
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