Paying off credit card debt

The number of people stuck paying off credit card debt is rising. A recent study found that each UK household has around £2,688 in unpaid credit card debt.

There may be several causes behind the UK’s credit card crisis. It may be that credit cards allow you to spend more than you earn or that an increasing number of people are using credit cards to cover financial emergencies.

Regardless of how you find yourself in credit card debt, there are many steps you can take to get rid of it.

What can I do to pay off my credit card debt?

If you’ve found yourself struggling with credit card debt, don’t worry. There are several different strategies you can put in place to get your debt levels down.

Evaluate your situation

Here at PayPlan, we believe that when faced with financial difficulty, the first step should always be to assess your situation. Firstly, take a look at your bank accounts. Total how much is coming into your account at the end of the month against how much is going out. Then, find your credit card statements and determine how much the repayment and interest rate will be.

Doing so lets you prioritise your debts and pay off those that carry the most consequences first. This may be the largest debt, the one with the most interest or otherwise; it depends on your situation.

It may be daunting, but identifying how much debt you have will allow you to create a budget successfully. This can help to get your finances back on track. More importantly, it will serve as that all-important first step you need towards paying off your credit card debt.

Change your spending habits

How much you spend is just as important as how much you save. A good idea is splitting your bills into wants and needs and then reducing those that fall into the first category.

By resisting your spending temptations, you will leave yourself with surplus funds at the end of the month. All this extra money can be redirected towards your credit card arrears and help you pay off your debt.

Work out a budget (and stick to it)!

If you can prioritise your spending and cut the impulse buying, you are already well on your way to creating a budget. Successfully doing so will ensure you have enough money for necessities after contributing to paying off your credit card debt.

By implementing some of the methods mentioned above, you can increase your repayments over time. However, you may find that changing your spending habits and creating a budget isn’t enough to cover repayments on your credit card loans. In this case, you may need to ask for help with debt.

What if I’m struggling to make repayments on my own?

If you’re struggling to cope with credit card debt on your own, it’s important to get in touch with a debt adviser as soon as possible. Unless you are one of the few with a 0% interest rate, failing to clear your balance at the end of each month will result in you paying interest on any balance outstanding. Should you miss a payment, interest will start to pile up. Couple this with additional late fees, and the situation will continue to get worse, especially if you’re dealing with multiple credit cards.

Are you concerned about credit card debt? Fill out our Free Debt Help form, or talk to an adviser for free today on 0800 316 1833.

Dealing with multiple credit card debts

Because credit cards are so easy to get hold of, it’s relatively common to see them pile up. When this happens, the worst thing you can do is bury your head in the sand. We’ve put together a checklist on what you can do if credit card debt appears to be building:

Pay the smallest debt first

Studies now suggest that paying off your debts from smallest to largest (the debt snowball method) can be more beneficial than paying off the one with the highest interest rate first.

The idea is that the psychological boost an individual gets from paying off the smaller balance motivates them to pay off their debt more than taking a chunk out of a larger one, even if it has a higher interest rate.

Continue making payments on all cards

When dealing with several credit card debts at once, the temptation is to focus on one you may consider a priority. Doing this can make it easy to neglect those smaller debts, which may gather more interest or late fees.

Ensuring that you at least meet the minimum payments for each month can have lasting benefits in the long term; by making these monthly payments to all your credit cards, you avoid incurring late or default fees.

Making consistent minimum payments also positively impacts your credit rating, as it will stop any of your accounts from defaulting.

Balance transfer credit card

Another option is to transfer your existing credit card debt to a balance transfer credit card with a lower interest rate.

It’s usually worth checking when the promotional period ends to avoid being landed with a high interest rate.

The credit card company will usually charge a transfer fee when moving a balance from one credit card to another. The fee is generally between 3-5% of the outstanding balance, although it will vary depending on the provider.

Consider a debt solution

A range of debt solutions are available to those dealing with more than one credit card debt at once.

Debt solutions

Credit card debt is a form of unsecured debt, as it’s not protected by an underlying asset. Here at PayPlan, we have a wide range of solutions available to those struggling with credit card debt.

Debt Management Plan (DMP)

Managed for free by our team here at PayPlan, a DMP is an informal agreement between you and your creditors. A DMP is arguably best suited for an individual who is struggling to make repayments to multiple creditors. Moreover, a DMP could be just what you need if you deal with multiple credit card debts.

With a DMP, you make one single monthly payment at a rate you can afford. All your essential costs and priority payments will be accounted for, allowing you to carry on living whilst paying off your credit card debt.

Individual Voluntary Arrangement (IVA)

If you have a sustainable source of income but your credit card debt is starting to pile up, an IVA may be a suitable debt solution. A legally binding arrangement between you and your creditors, an IVA allows you to repay your unsecured debt over a fixed period of time, typically around 5-6 years.

With an IVA, all interest and charges on the debts included in your IVA are frozen. This could be well-suited to those dealing with credit card debt as it will stop escalating interest rates.

Debt Relief Order (DRO)

Another way of dealing with credit card debt is with a DRO. To be eligible for a DRO your total unsecured debt has to be lower than £30,000. If you don’t own a property, a vehicle or other assets over the value of £2000, this could be the perfect debt solution for you. Debts listed in the DRO are written off one year after it’s approved, and creditors will not be allowed to chase you for funds.

It’s important to note that many different debt solutions are available to those struggling with credit card debt. However, these should never be entered into lightly. Although they will lead you on the right path towards a debt-free future, many will have a lasting effect on your credit score. As such, it’s important to always consult an adviser first.

It’s easy to see how and why so many people are affected by credit card debt. If you find yourself struggling, get in touch with an adviser today on 0800 316 1833, or visit our website and fill out a free debt help form.