How Brits can get to grips with their credit card debt

The credit card, as we know it, has been with us for half a century now. In that time, it has helped countless people acquire big ticket items, but for many, it has also been the source of many a sleepless night.

If you’ve been feeling anxious about the outstanding balance on your credit cards, then you’re not alone.

Research suggests that one in seven Brits are seriously worried about their finances and tend to run out of money before payday, with around one in 20 using their credit card to make ends meet.

An identical proportion have had credit card debt for at least three years and they don’t expect that to change through 2017. This debt stretched to five years or more for almost one in ten too.

Of the 2,002 randomly selected UK adults surveyed by GoCompare in July, seven per cent said they would ask friends or family for financial help to deal with their credit card debt, six per cent will need to take out a zero per cent balance transfer credit card, while five per cent admitted they’d have to take out a loan.

Seven in ten adults constantly worry about debt, study finds

Credit card debt is a greater problem in London than anywhere else in the UK, with two in five having balance on one or more credit cards. Those living in the capital were more likely to carry that debt over a long period of time too, with 16 per cent of Londoners admitting to having card balance for more than five years.

Nationally, a tenth reckoned their credit card and other unsecured debt would be their biggest financial worry for the next two years.

So what can you do to reduce and pay off your credit card debt?

Grab the bill by the horns

Acting fast is key. When your statement comes through the post, get on it as soon as possible. The figure inside may seem daunting but it’ll only get scarier when more interest is added as time goes on.

Avoidables

Keeping on top of your statements should mean that you’ll know when your payments are due and missing a payment usually results in a £12 charge from your card issuer. Try not to use your credit card to withdraw cash because they’ll hit you for anything between £1.50 and £5.00 for the privilege.

Minimum payment = minimum effect

Making the minimum payment may seem like you’re getting somewhere but it’s akin to scrubbing a scummy bathroom with an old toothbrush.

As long as some debt exists, card issuers will continue applying interest so the longer you take to pay off the outstanding balance, the more money you’ll end up paying out.

Coughing up the cash to wipe out any balance most likely won’t be an option so if your debts are spread across more than one card, the best course of action is to pay off the most expensive card first.

Switch it up

Pick out your card with the longest interest-free period on balance transfers and pile your credit card balance on there. A small balance transfer fee of around three per cent may be applied, but it’s worth doing if you can get zero per cent interest for 41 months.

Alternatively, if it’s unlikely that you’ll repay the lion’s share of your debt during the interest-free period, switch to a card with a low interest rate for the lifetime of the balance transferred. This will immediately reduce the interest rate until the debt is paid off.

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Clever trick

If you pay off the balance before interest payments kick in, credit cards can be a clever way of receiving a short-term, interest-free loan, said GoCompare’s head of money Matt Sanders.

One common pitfall with credit cards though is when people use their plastic to buy everyday essentials, added Mr Sanders, triggering debts to quickly spiral out of control.

“Persistent credit card debt is a real problem for many people, trapped in a cycle of minimum payments and mounting interest,” he explained.

“Much of the money owed on credit cards is made up of the interest charged on the debt, so it’s important to try and repay the balance as quickly as possible.”

By James Francis