Credit cards are great if they are used correctly but sometimes unforeseen circumstances force us to use them and all too soon they can get out of hand. Maybe your trusty old car has finally had its day and you needed to replace it asap. You may have had an accident that required an extended period of time off work and you used your card to pay the household bills.
Whatever the reason for using it more than you could realistically afford, the problem won’t go away by ignoring it. Regardless of how good the Terms & Conditions are at first, if the debts start to mount up then they are just as troublesome as any other debt. Many people have similar issues with catalogue debts as it can add up without you realising straight away.
If you need credit card debt help then there are numerous options that you can explore. The main thing is not to panic. Take a step at a time and chip away at it little by little.
The best way to clear credit card debt all depends on how much you owe and your financial circumstances as a whole. Everyone’s situation is completely unique to them so there isn’t just one fix-all solution. If you can’t pay a lump sum to reduce your balance then the trick is to save money by getting rid of as much interest as you can.
Generally speaking, the most sensible way to clear off credit card debts (other than paying them off in full, of course) is to get a 0% balance transfer card. This may seem like you are shifting the problem around, and in a sense it is, but it will save you a lot of money.
A 0% balance transfer means you can transfer your existing debt over to a new credit card and pay no interest on that balance for a set amount of time. The time period varies from card to card but some companies offer as much as 25 months interest free.
This should go some way to tackling your credit card debt without having to resort to drastic measures such as insolvency.
Reducing your credit card debt can be done in a number of ways - balance transfers are not the only option. The important thing to realise is that there are options, you don’t need to struggle and worry. Here are just a few of the options open to you if you want to reduce your credit card debt:
The only way to write off debts on a credit card is by going through insolvency. You cannot write off credit card debt yourself! Insolvency should be a last resort when there is no other alternative credit card debt help available.
Insolvency is caused by you being in a situation where you are not in a position to pay for the finance that you have agreed to. There are two types of insolvency; IVAs and Bankruptcy.
Individual Voluntary Arrangement (IVA) - Where you speak with an Insolvency Practitioner (IP) such as Hanover Insolvency Practitioners who will go through your finances with you and decide how much you can realistically pay towards your debts.
The IP will then represent you at an arranged meeting with your creditors, where they will vote on whether the agree to grant the IVA. If they do agree then you will make one payment to your IP for five years. The IP will take a fee from each month’s payment and the rest will be distributed amongst your creditors.
While the IVA is in place, all interest is frozen and your creditors cannot contact you about the debt. If there is any outstanding debt at the end of the five years, it will be written off and you will be debt free.
It’s important to realise that while being debt free sounds appealing, you will be unable to apply for credit while the IVA is in place. It will also seriously affect your credit score.
Bankruptcy - The more serious of the two insolvency measures. You will have to pay to go bankrupt and this can cost between £525 to £705 depending on certain circumstances.
Generally you will only go bankrupt if you have very little or nothing at all left at the end of the month after paying off your commitments. Once you have been registered bankrupt you are normally discharged after one year but it remains on your credit file for a further five years.
You may have to pay something to your creditors every month but this is only for three years and only if you can afford to. It is also very hard to apply for credit while the bankruptcy is still showing on your credit file.
Bankruptcy is ideal for getting rid of high amounts of debt but it does leave your credit file in bad shape for a long time.
A common reaction for people with debts that they can no longer afford is to think that there is nothing they can do and they just have to struggle. We are here to tell you that is not the case - there are always options available. Some credit card debt consolidation options are easier than you think too.Check out our glossary of debt terms to find out more about the different things you may hear to do with this topic.
Before considering any refinancing it is recommended that you work out if you can afford the new payment first. It was also be sensible to obtain a copy of your credit score and credit report to see what your chances of success would be.
There are a lot of credit cards on the market that offer 0% interest on balance transfers. This means that you would transfer your existing debt over to the new card and you won’t receive any more interest on top, providing you keep up with your payments.
Even if you don’t qualify for a 0% interest card, by seeking out a credit card with a lower interest rate than your current card you could still save yourself a lot of money and worry.
If you need to reduce your credit cards repayments then aside form paying off a lump sum, restructuring your finances is the best option.
Each person’s financial situation is different so you need to make sure that whatever option you choose it will work for you. Even though restructuring may make your payments cheaper, will it also extend the time you have to pay off the debts? Will you qualify for a loan or credit card or are you restricted because your credit score isn’t very good?
Using a credit score company and a loan calculator can help you to make these decisions. Most companies allow you to access your credit score for free and they also suggest what financial packages you can apply for based on that score.
A loan calculator takes into account how much debt you have and the time period you wish to pay it over. Some even take your monthly expenditure into account.
These two tools alone will make it easier for you to decide which financial product will be the best for reducing your credit card repayments.
Let’s discuss how to pay off a credit card with a payment plan. The very first thing you should do is to work out a budget. Start by working out your net income from all sources, i.e how much money you have coming in each month. Then subtract all your expenses from this income and include your current credit card payments.
The number that you have left over is how much disposable income you have. Use as much of this disposable income as you can towards your credit card payments. As the balance starts to tumble, so will your monthly payments.
If you are not in a position to do this you can ask your credit card company if you can enter into an informal arrangement with them. If you are in Scotland, you may be able to enter a debt arrangement scheme which helps you manage the problem. Get in touch with your credit card provider that you are unable to make the minimum payments due to financial hardship. You would then suggest an amount that you are able to pay.
If they accept this will give you a little bit of wiggle room to restructure your finances. It should not be seen as a permanent solution. It is also completely at their discretion. They have no obligation to accept your offer, but most companies would rather receive some form of payment rather than nothing at all.
Applying for an IVA as a form of credit card debt help is becoming more and more common. Debts spiral out of control to the point where insolvency becomes the only option for a lot of people.
It should only be used a last resort because of the damaging effect it has on your credit score, but it should not be seen as a sign of weakness. Arranging an IVA should be seen as a positive step - you are actively trying to sort out your finances the best way you can.
Individual Voluntary Arrangements will freeze all interest on your credit card accounts and write off the vast majority of your debts. You will still continue to make payments to your creditors but at a vastly reduced rate.
This usually takes five years to complete but actually stays on your credit file for six years. During this time your credit score will be extremely low and realistically you will be unable to apply for any further finance.
Using an IVA to pay credit cards off could be an option if your debts are beyond any conventional forms of restructuring. It does have serious consequences but it can also bring a peace of mind that is worth paying for.
We understand that Littlewoods are a popular brand and they do make shopping very convenient. There does come a point though where the amount of interest that they add on becomes too much to ignore any longer. Is Littlewoods really your best option for credit?
Your Littlewoods credit card debt options are:
Tesco may seem like a surprising choice to offer a credit card but they do offer some good terms and conditions.
Tesco recently introduced the Tesco Foundation Card which is designed for people with bad credit or those who have never had credit before. You start off with a relatively low credit limit but this is reviewed periodically.
There is also an interest free period for purchases made within the first six months, and you can earn Tesco Clubcard points for using it too. They have also teamed up with credit reporting firm Noddle who offer you a credit improving service for three years
The drawback to it is the interest rate. The standard APR is 27.5% and can creep up to 39.9% depending on your circumstances, so you need to be 100% sure that you can afford the repayments.
Tesco Foundation Card Pros
Tesco Foundation Card Cons
A question that comes up again and again with credit card debt help is, ‘Can I freeze my credit card interest rates?’ The short answer is … maybe.
If you are struggling financially it is always recommended that you speak to your creditors. If they don’t know that you are having trouble then there is no chance of them helping you. If you explain your situation you may find that they are both sympathetic and lenient towards you.
You can request to set up an informal arrangement with them. An informal arrangement will allow you to make reduced payments to your creditors indefinitely. Creditors have to treat you fairly in these situations but they are not legally obliged to accept your offer either. This may involve them freezing your credit card interest rates and charges to help, but again, they are under no obligation to do so. One option to consider is an F&F settlement where you ask the creditors to accept one final payment you can afford.
The only other way of freezing your interest rates and charges is by getting the courts involved. A CCJ can be applied for by your credit card company if you do not make your payments. If the court does not make you pay the balance in full immediately they will set up a monthly payment plan and the interest will be frozen.
The other methods involve going through insolvency measures and applying for an IVA or bankruptcy. Your interest will be frozen if you use either of these methods but it can take up to six years to fully clear the debts from your credit file.
Even if it is not your fault that you are unemployed (sickness, redundancy, carer etc.) you still might want a credit card just to keep your credit score in shape. Most credit card companies want to see some proof of income before they will let you lend from them, so if you are unemployed this really restricts your options.
There are credit providers that will cater for low incomes. These are known as credit rebuilding cards. These types of cards are great IF you pay off the full balance every month. They normally have low credit limits with very high interest rates so be sure that you can afford them before you apply or the interest rate could prove highly problematic.
The other alternative is a prepaid credit card. Because you are not actually applying for credit with these cards you will be accepted for them. Think of these like a pay as you go mobile phone. You top up your credit card with however much money you would like to use and then use it to pay for goods and transactions. There is usually a small fee to pay each month (approximately £5), but keep up your payments for 12 months and also has the added bonus of improving your credit rating too.
Let’s break this down to the basics: What is a credit card?
A credit card is a type of loan. You borrow money from a credit card provider and pay them back at a later date rather than the amount being debited from your personal account.
Credit cards can be extremely useful for purchasing items and services if you don’t have the money to hand. They give you a degree of flexibility that is perfect for purchasing more expensive items.
If you pay off the full balance each month then you won’t pay any interest. If you don’t clear the balance then your credit provider will add interest onto your balance.
Credit cards can offer all sorts of added incentives such as cashback, Nectar and clubcard points and airmiles. Some supermarket credit cards even offer shopping vouchers.
To obtain a credit card in the first place you have to go through a process of application. The lender, usually a bank or building society, will look back through your credit file to see what your credit history is like.
If you have a strong credit score then you will be accepted for a credit card. The stronger your credit score is, the better the products that they offer you will be. If you have a weak credit score then you may be rejected for the credit card on the basis that the lender does not think that you will be able to make the repayments.
If your credit score is poor, you may still be accepted. The card provider may still offer you credit but it will probably be at a higher rate of interest than if your credit score was better. This means that if you do not clear your balance each month then you will have to pay extra on top of what you have borrowed.
Interest rates, or APR, will vary depending on which card you are offered. This will be determined by what the lender sees on your credit score and by the information that you provide them with about your income and expenditure on your application form.
Credit cards and debit cards can usually be used in the same places, but what is the difference? The difference between a credit card and a debit card is really very simple. A debit card takes the money straight from your personal bank account, whereas a credit card charges it to your line of credit.
Think of it this way: If you make a purchase on your debit card the balance of money in your personal account goes down. If you make a purchase on your credit card then its balance will go up. The purchase that you made on your credit card will have to be paid back to the lender.
If you clear the balance of a credit card each month then you will not have to pay any interest. If you don’t then your lender will add interest on for the privilege of lending it to you. With a debit card you can only spend what is in your account. Once that money is gone it needs to be replaced before it can be used again.
