Credit cards, used wisely, can be a key component in modern living. They are more convenient than cash and can as the old advert had it, "take the waiting out of wanting".
However, it's easy for credit cards to take over your financial life - if you let the credit card take control you'll find yourself at the top of a slippery slope of credit card debt that can harm your credit record and could see you plummet into bankruptcy.
Remember also to look carefully at any promotional rates you are offered. A zero percent card may be a great offer if you are sure you will always make the payments bang on time - if you don't, you'll usually find you lose that promotional rate and end up paying high interest that you did not bargain for.
Overdoing credit card spending can set you on a long arduous road to becoming debt free.
There are some simple rules to help you clear your credit card debt. First, here's what to do if your credit card debt is merely tricky - not disastrous.
If you can, you must pay more than the minimum payment off your credit card debt each month. Pay on time or penalties will certainly be charged (they may have come down recently - but late-payment charges are still a pain in the neck), creating a larger minimum payment for the next month - and a larger charge added to the total again if you miss a second month.
If you have more than one card, and can pay a little more than the minimum on all your cards then consider paying a higher amount on the card with the highest balance and/or highest interest rate. This technique, often called "snowballing" will help you pay of debt more quickly.
Think about transferring your credit card debt to a low-rate or a 0% card. But, make sure you know when that rate is due to expire and finish paying off the balance (or move it) before that happens. Oh, and, as noted above, late payments on a 0% credit card are likely to result not just in charges, but in reversion to the standard rate of interest.(See this ClearDebt Blog article for more info on 0% Credit Card Traps)
If you are a little further down the credit card debt track and
can only just pay your bills when they fall due, then stop using
your credit cards and consider the "snowballing" debt repayment
technique referred to above. This is how the debt snowball for
credit card debt reduction works: first you put all the money you
can afford into repaying your most expensive credit card debt or
loan first. Then move onto the next most expensive credit card
debt, and so on. This can slash months off the time needed to
become debt free. Keep an eye on interest rate changes too - you
may find that you need to re-align payments if one card suddenly
becomes more expensive than another.
Always make sure you make at least the minimum repayment on every card you have - otherwise penalty charges will probably outweigh any savings you make.
If you decide to do your own debt management plan (DMP), then you can pick up the phone and negotiate with your credit card providers. They may try to help, after all, getting something back is better than nothing.
You could try telling your credit card providers that a credit card company has offered to pay off all your old credit card debt at four per cent if you switch (It's worth getting that offer first - to avoid incredulous laughter at the other end of the line: This used to work well, but is increasingly difficult to do). Ask your old companies if they can do better, and go with whichever is lowest.
You could also try the straightforward approach: Tell the credit
card company's collection department that you're having financial
difficulties and need help paying your credit card debt. It's as
simple as that. They say: 'What can you manage?' You tell
Or, write letters to each of your creditors acknowledging the situation, and tell each one what you can repay. They may appreciate your openness and you might earn some breathing space. Lenders are increasingly sympathetic to this approach - but they are highly likely to continue to chase you.
However, it's increasingly likely that your credit card creditors will ask you to talk to a debt management organisation like CCCS (Consumer Credit Counselling Service), which the lenders fund (A BBC journalist has had a recent experience of this, click here to read her debt diary). The debt manager will try to put you in an informal debt management plan: This may be just what you need. Of course, we are a fee charging debt resolution company, proud of the service and value for money we offer our clients.
However, this debt management plan is likely to involve repayments that will be similar to those you'd need to cough up every month in an IVA (Individual Voluntary Arrangement) and may well be scheduled to last ten years or more. Interest may not be frozen and creditors can still take legal action against you at any time.
You will almost certainly end up paying your creditors more with a debt management plan than you would in an IVA - so some might see it as the honourable course. However, this kind of debt management can be an expensive and uncertain way to clear debt, so think before you commit.
The debt management plan may be better than an IVA - especially if you feel your financial woes are temporary (likely to last no more than a year or two), if you owe relatively little to relatively few different creditors or in other circumstances (see our debt management pages here).
To find out if an individual voluntary arrangement or debt management plan complete our online form and one of our advisors will call you back to discuss your options: