Credit card debt

If you don’t pay off what you owe on them each month, credit cards are amongst the most expensive forms of borrowing money. When you add the proportionally large fees imposed for straying over your credit limit, even by a few pence, or paying just a day late, or for paying less than the minimum monthly amount, the total you owe on the card can soon escalate out of control. This is especially true if you have a range of cards, as many people do.

Transferring your credit card debt to new cards that offer interest free or low-interest periods means that you have more money to play with each month in a bid to clear credit card debt, but the temptation is always there to run up new debts on the card or cards you have just paid off. Interest free and low interest rate special offers usually last for a short period only, and the economic downturn has seen fewer such offers available.

It is tempting to consolidate credit card debts, transferring the amount owed on your cards to one loan that may require a lower monthly payment. However, the interest rate charged on the loan may not be much lower than the rate you were paying on the cards (advertisements for loans promote an attractive typical rate, but many applicants are offered an appreciably higher one because of their credit status), you may pay more in the long run, and there may be a temptation to run up new debts on your cards that have been newly cleared of their balances.

If you try to wipe out credit card debt with a secured loan - a loan that is secured on your property - you are transferring an unsecured debt onto a loan that could cause the loss of your home if you do not keep up the repayments.

If you begin to find that you are struggling to meet minimum monthly credit card payments or slip into arrears it is important to discuss the matter with your credit card company as soon as possible as it may be able to arrange temporary measures to help ease the situation.

If you do nothing the problem could get worse as your lender could begin legal proceedings, and you could end up paying a higher amount in charges and interest. Missed payments can affect your credit rating, making it more difficult to obtain credit in the future.

Even if your credit card company is pressing you for payment, it is important to pay priority debts first, such as your mortgage, rent, council tax, gas bill and electricity bill.

If your lender issues a default notice against you it is important not to ignore it. Read it carefully as it will explain what you have to do. There are a number of organisations, listed below, that can offer free independent help and advice, and you may be able to get a debt adviser to negotiate on your behalf and/or set up a debt management plan or other repayment schedule where you make manageable monthly payments, agreed by your lender, and the possibility of interest charges and/or fees being suspended.

There are credit card debt consolidation services offering credit card debt service including credit card debt relief and credit card debt management but it is important to seek independent advice before using any as their services may incur fees.

Free, impartial, confidential advice is available from:

Citizens Advice - debt, consumer and other advice - find your local Bureau in the telephone directory or at www.citizensadvice.org.uk

National Debtline - debt advice in England, Wales, Scotland - 0808 808 4000/www.nationaldebtline.co.uk

Consumer Credit Counselling Service - debt advice - 0800 138 1111/www.cccs.co.uk

ConsumerLine - consumer advice in Northern Ireland - 0845 600 6262/www.consumerline.org

Consumer Direct - consumer advice in England, Wales, Scotland - 08454 040506/www.consumerdirect.gov.uk

By Ben West