Chat with us, powered by LiveChat
Credit Card Debt Management
Stop creditor action and consolidate all of your debts into one monthly affordable payment – from £70 per month
Excellent

Absolutely amazing, hassle free, my rep was brilliant and i was treated impeccably, 5 stars across the board

Tracy

Very helpful

Sarah

Very professional and helpful explains everything

Anonymous

Very friendly and helpful

Shelley

very friendly polite people explain everything clearly to you recommended this company

Sharon

What is credit card debt?

Credit card debt is a type of revolving debt. You can keep borrowing month after month as long as you repay enough that you never owe more than your credit limit. Credit card accounts can be used indefinitely, unlike instalment loan accounts that are closed once the balance is paid off.

This type of debt can easily get ahead of you, wreaking havoc on your finances and your credit score. It’s generally advised that you shouldn’t charge more than you can afford to repay at the end of each month, no matter how high your credit limit might be. 

People are charged interest on the debt when they don’t pay off their balance, and this will accumulate until they do, so they can get even further behind with payments.

Understanding credit card debt

While useful for making purchases over time, credit card debt does carry some of the industry’s highest interest rates. It typically accounts for a significant portion of credit utilisation on a borrower’s credit profile.

Paying down substantial portions of outstanding debt is one of the best ways to rapidly improve your credit score.

Generally, credit card debt refers to the accumulated outstanding balances that many borrowers carry over from month to month. It can be useful for borrowers seeking to make purchases with deferred payments over time. This type of debt carries a high-interest rate. However, credit card borrowers do have the option to pay off their balances each month to save on interest over the long term.

How it works

Credit card debt is unsecured. It’s not backed by a piece of property, such as your car or your home, that acts as collateral, so a lender can’t claim it and sell it if a borrower stops making payments. Not repaying your debt can nonetheless seriously damage your credit score and history.

You’ll accumulate debt if you don’t pay off your entire balance by the due date each month. Card balances carried month to month are charged interest in the form of an annual percentage rate (APR).

The disadvantages of credit card debt

Contrary to popular belief, carrying credit card debt does not improve your credit score. Using credit wisely improves your score. This means charging only what you can afford to pay off each month, making on-time payments, and keeping your balances as close to zero as possible.

Consider what you’re giving up by paying interest on card debt every month rather than investing that money elsewhere. That money could be valuable savings for retirement, your emergency fund, or a down payment on a house.

How do I know if I have too much credit card debt?

Your credit utilisation ratio is your total credit card balance divided by your credit limit. It’s the percentage of your available credit limits that you’re actually using. It has the second biggest impact on your credit score, right behind your payment history. The lower your credit utilisation ratio, the better. A ratio greater than 30% will usually hurt your credit score. Your debt-to-income ratio is your monthly debt and housing payments divided by your gross monthly income. Your debt-to-income ratio shows how much of your pretax income goes toward monthly housing and debt payments, including payments on credit cards. Lenders look at this ratio when they’re reviewing new credit applications to determine how much more debt you can take on—or not take on. A debt-to-income ratio greater than 40% indicates you have too much debt and makes approval unlikely. Many banks and credit counsellors recommend a debt-to-income ratio of 30%.  

Other signs that you might have too much debt:

  • You spend more overall each month than you earn.
  • You’re missing or making late payments to afford other bills.
  • You’ve used one credit card to pay another.
  • You rely on credit cards to afford daily purchases like gas and groceries.
  • You’re making credit card payments instead of adding money to a savings account each month.
  • You’ve considered filing for bankruptcy.

How to control your debt

Credit cards can be a useful financial tool despite their downsides and can improve your credit score when used wisely and if you take precautions.

Learn as much as you can about your current credit cards and any you want to apply for. Review the card issuer web pages carefully, comparing credit card terms and conditions and benefit guides. Knowing how and when you’ll pay will help you use credit wisely.

Establish spending rules for your cards and stick to them. For example, only use your credit card for groceries or routine car maintenance—both expenses your budget should already support.

Credit cards aren’t an excuse to go on a shopping spree. They’re not “extra” money. Live within your means, and only use your cards to pay for things that you could also pay for with cash or your debit card.

You’ll face both late fees and interest charges if you don’t pay on time. Your card issuer might also raise your APR to the penalty rate outlined in your card’s terms and conditions, depending on how late you pay. Set up calendar alerts or automatic payments if you have trouble remembering due dates.

Penalty rates are often around 30%.

Avoid taking cash advances. Using a credit card for a cash advance means paying higher interest charges and transaction fees, and these transactions typically don’t have a grace period. Interest is charged starting the day you take out the advance, not when the billing cycle closes.

Don’t open new cards on a whim. Having a wallet full of cards can encourage excess spending and make it hard to keep track of where your money is going. Focus on using cards that work well with your existing spending habits.

Check your credit report periodically. It will show the debts you owe, your repayment history, the number of inquiries on your accounts, and what types of credit you’re managing.

Lenders use credit reports to gauge your creditworthiness, and you can do the same. You’re entitled to a free copy of your credit report from each major credit bureau.

If you are worried about your debt then ask for debt advice and consider a debt management plan. Reach out to your card issuers if you have questions or concerns. Don’t wait until your accounts fall into arrears.

What is a debt management plan?

A debt management plan helps eliminate credit card debt without taking out a loan. Debt management can reduce interest rates and provide affordable monthly payments based on your budget.

A debt management plan (DMP) is a carefully constructed payment schedule that consolidates credit card debt payments into one affordable monthly payment. There is no loan involved, and credit scores are not a factor.

Consumers in a debt management program generally pay a reduced interest rate on their debt. After enrolling in a DMP creditors require you to close your cards, so as not to incur additional debt.

Features of a DMP

  • Consumers make one consolidated monthly payment to a nonprofit credit counselling agency, which then pays off all creditors, in an agreed-upon amount.
  • Creditors offer reduced interest rates on credit debt.
  • Monthly payments are calculated at an affordable rate based on the consumer’s budget and are agreed upon by the creditor.

A repayment plan that works for you

Whether you’re overwhelmed with calls from debt collectors, or just unhappy with your debt situation, a debt management plan (DMP) can help you:
  • Reduce your stress levels
  • Consolidate your debt into one monthly payment – without a loan
  • Save money on reduced interest rates
  • Accelerate your debt payoff
  • Create financial stability
  • Stop the collection calls
If your debts are taking up too much of your time, money, and mental wellbeing, then look for some debt advice.

What to do if you can’t pay

Credit cards are covered by the Consumer Credit Act (CCA). This means there are strict rules your creditors must follow if you’re struggling to pay your credit card bills.

Used wisely, they can be helpful. But if you’re not careful they can be an expensive way to borrow, especially when it takes a long time to pay off what you owe if you can’t pay the balance.

If you don’t pay the minimum payment your account will go into arrears and the following will happen:

  1. Your lender will contact you to demand the missing payments are made
  2. Then if you don’t make the payments they ask for, the account will default
  3. And if you still don’t pay, further action may be taken, such as employing debt collection agents to recover the money you owe them

 

If you’re struggling to make your usual monthly credit card payment due to coronavirus, there are a number of ways creditors may be able to help you.

To support customers who are struggling with their finances, creditors may be able to help by:

  • Offering credit card payment holidays for up to three months
  • Ensuring your credit rating won’t be affected if you use a payment holiday
  • Increasing credit card limits – it’s important to consider the longer-term impact this could have on your credit file. Be aware that if you’re on a debt solution, taking out extra credit could go against the terms of your agreement.

How do I pay off my debt?

  • Start by understanding your finances, so you know what you can afford to pay each month. Work out your budget by listing your income and spending (without using further credit) and turn this into a monthly plan you can follow.
  • Use this budget to set aside an amount to repay your credit cards, or ideally to save up for an emergency fund. It can help to transfer this amount to a separate bank account.
  • Stop using your credit card, even if this is just for a short time. It’s much harder to pay off if the amount you owe keeps growing.
  • Make sure you’re on top of your ‘priority bills’. These include council tax and any fines you might have. If you fall behind with them, you’re at risk of visits from enforcement agents
  • Get free debt help if you’re not sure what to do. We’re here to help you out with your budget, advise you about different solutions (including debt consolidation) and set up a repayment plan if that’s the right option for you.

Can you negotiate your debt?

If you’re falling behind with payments, it’s often a good idea to contact your credit card provider to explain what’s happening and tell them how much you can afford to pay each month. Many creditors will agree to an affordable repayment plan or a payment holiday to help you get back on track, even if this is only for a few months

A debt management plan is a way of making affordable monthly payments. Work out how much you have leftover after essential household spending, then offer a share of this amount to your creditors.

Some creditors will accept a ‘full and final settlement’ to pay off debts that is less than the total amount owed if you have the funds available to make a prompt payment.

How does debt affect my credit score?

Your credit card provider will share information with credit reference agencies about the way you use your card to update your credit score. This information will help other creditors decide how risky it is to lend money to you.

Credit files state the balance owed, your payment history and if the account has defaulted. Credit card providers give extra information to the credit file companies, including:

  • Your credit limit
  • How much you’ve spent each month
  • How much money you’ve withdrawn from a cash machine each month

Get free debt advice today

You can get free debt advice from IVA Advice. While many people may be wary of asking for help, it’s important to take responsibility for your situation. We will offer you a plan that deals with all aspects of your financial situation, including debt advice. If you feel like there’s nothing you can do to deal with your debts, and you want advice on writing them off and doing monthly payments, then contact IVA Advice. We can help you with a debt solution or IVA proposal. We’ll help you to prepare a budget and work out what options there are to deal with your debts. Call IVA Advice and chat with us, so we can understand the best way to help you.