Credit Card Debt

Overview

Credit cards are one of the most valuable financial tools we have.

Offering the ability to split the cost of an expensive or unexpected payment with a monthly payment can be incredibly important to some people.

However, used incorrectly and a credit card can cause serious financial hardship with major consequences.

What is credit card debt?

Credit card debt is a type of unsecured debt that can occur over time as you accumulate outstanding balances on your revolving credit card loans.

What is credit card debt?

Credit card debt is one of the most common types of debt in the UK.

That’s because credit cards are a popular way of borrowing money because you can repay the amount you borrow in smaller amounts over a long period of time.

Used wisely a credit card can be a useful tool to help you cover the cost of a large purchase or an unexpected payment. However, it’s important never to lose sight of the fact that although it might seem simple and easy to manage, you’re still borrowing money.

A credit card is the same as taking out a loan. That means that you must stick to the agreed repayment plan or risk falling into serious debt problems.

Credit card debt is sometime referred to as a revolving debt as borrowers become stuck in a cycle of spending using their card and only making the minimum payments.

The debt can be made worse if you miss repayments and you’ll not only face a higher bill the following month but also a late payment charge.

It’s also important to remember that credit cards come with an interest rate that is added every month of the year. While you may be tempted to max out a card during the interest free period, you should remember that will eventually come to an end and the charges will then be added to your monthly payments.

And as with any company or person you owe money to, known as creditors, your credit card provider can and will take action to recover any money owed including legal action.

What happens if I can't pay my credit card debt?

If you fall behind on your monthly credit card payments your provider will begin to take action.

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 but action can and will be taken.

At the very least you should always try to make the minimum amount each month. Failure to do so will mean you will fall into credit card debt and the credit card company can begin to take action.

Firstly they will contact you to demand you pay the outstanding debt and they won’t stop until you do so.

If you continue not to pay your account will default – that means your missed payment will appear on your credit file and impact your credit rating.

Finally if you still don’t pay the outstanding credit card debt your credit card provider can take further action. This can range from enforcement action where a bailiff will visit your home to recover debt owed to being summoned to court where you could receive County Court Judgment (CCJ).

How can I pay off my credit card bills?

It’s important to make every effort to stay on top of what you owe to avid problem credit card debts.

Credit card companies will take enforcement action to recoup what they are owed and failure to pay could negatively impact your credit rating so it’s in your best interest to stay on top of what you owe.

Contact your credit card companies

If you’re unable to pay credit card bills as they fall due it’s important to stop using the cards right away and contact the card company straight away.

It might seem daunting to admit to credit card issuers that you’re not able to pay what you owe but try not to worry. They could arrange a payment holiday or arrange a repayment plan to stop the problem worsening.

Try to pay more than the minimum payment

When making the minimum payment it can seem like you have what you owe under control but the reality is it will appear to credit card companies that you’re in persistent debt.

They will write to you, asking you to increase the amount you pay each month in a bid to help clear the outstanding balance.

It’s important to take credit card payments into consideration when planning a monthly budget. By putting the money aside each month, you’ll be able to pay off the credit card or cards faster without co

Try upping your repayment plan

If you’re only making the minimum payment, your credit card company will write to you asking to pay more to try and get you out of what’s known as ‘persistent debt’.

By setting yourself a realistic budget that you can easily stick to, you’ll be able to pay off your credit card faster without breaking the bank.

However, make sure you’re not leaving yourself short of funds for other priority bills such as your council tax or utility bills – the point is to pay back what you can, not to fall into trouble elsewhere.

Consider a balance transfer

If you’re paying a highest interest rate you might want to consider switching to a balance transfer card.

Some credit card companies let you transfer the balance form one card to another.

That means you could transfer debt from a credit card with the highest interest rate to one with a lower interest rate or even 0% interest.

However, you should be wary of being caught out by a balance transfer fee. Most companies charge 2-3% of the amount you’re transferring.

It’s important to take this into consideration weigh up if you’ll actually save as much as you expect.

Does credit card debt affect my credit rating?

Yes, having and using a credit card will impact your credit rating, also known as your credit score.

The amount you borrow and your ability to keep paying what you owe will all go towards your rating.

This information is stored in your credit file. This file determines how high or low your credit score will be as it details how much money you owe, the number of payments made and importantly if you’ve missed payments or defaulted.

Credit card providers share information about how you use your credit cards and account activity with credit reference agencies. These agencies, such as Experian, TransUnion and Equifax, are responsible for keeping your credit file up to date.

Your rating is important as it allows other lenders to asses your creditworthiness. In simple terms, it allows lenders to determine how worthy you are of credit and how likely you are to stick to payment agreements before lending money.

Having a good credit rating is important as it increases your chances of being approved for loans and credit cards. You’re also more likely to be offered more competitive interest rates as well as a higher credit limit.

How we helped Paige

It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.

Paige , IVA Customer

 

Can I go to jail for credit card debt?

This is one of them most common questions about credit card debt.

Credit card debt may be one of the biggest types of debt in the UK, but it isn’t enforced by the threat of going to jail

If a creditor, like a credit card provider, threatens you with imprisonment you should make a complaint about them as soon as possible.

You can face imprisonment for certain types of priority debt. These include:

  • Criminal fines
  • Council tax (England only)
  • Business rates
  • Child maintenance arrears owed to the CSA

But it’s important to remember that even with these types of debt, prison is normally only possible as a last resort if you’ve ignored the debt or refused to pay.

 

Can you renegotiate credit card debt?

If you’re struggling to pay your existing credit card balances it’s a good idea to speak with the providers you owe money to.

If you’re unable to pay the existing balance you could find yourself facing costly late payment charges while more interest is piled on top of what you already owe so it’s important to act as soon as possible.

You should contact your credit card providers to let them know your situation as well as how much you can afford to pay each month.

Many companies will agree to an affordable payment plan to encourage you to start paying again. Some may even offer a payment holiday to help get you back on track.

Can I get joint credit card debt?

The law states that a credit card can only be taken in one person’s name, so there’s no such thing as a joint credit card.

You may, however, be offered a second credit card from your provider to be used by another person such as partner or spouse.

It’s important to be aware that even though the second card will have your partner’s name on it, you will still be responsible for payments on both cards.

The other cardholder holds no liability so you should always think very carefully before adding a second cardholder on your account and avoid it if possible.

Is it bad to only make the minimum payment?

Your credit card debt must be paid back every month and you are required to make a minimum payment.

The minimum payment is a percentage of what you owe. This usually ranges between 1% and 3% with a minimum amount of £5.

While making the minimum payment each month might seem like you have things under control, the reality is you’re only paying interest owed each month.

If your payments cover more interest and charges than the debt you owe on the credit card for 18 months or longer, you’ll be classed as being in persistent debt.

If this is the case, your credit card provider or providers will be in touch and ask you to increase your payments.

failure to pay could negatively impact your credit rating

What are credit card limits?

A credit limit is exactly that. It’s a cap on the total amount that you’re able to borrow.

The maximum amount you can borrow may vary depending on your credit rating. In short, the better your credit rating the more you’ll be able to borrow at a competitive rate. If you have a lower credit rating, or score, you could still get a credit card but would likely be able to borrow less and will face a high interest rate.

If you do have a low credit rating but are still interested in getting a credit card you should do so with caution. You must make sure that you find the card with the best interest rate for you and ensure you budget to cover the cost of payments each month.

It’s also important to be wary of taking on a higher credit limit. Sometimes credit card companies will reward regular payers with a higher limit to borrow. You should only do this if you feel you’ll still be able to clear or make more than the minimum payments each month.

What credit card debt advice is available?

If you’re concerned about managing your credit card debt it’s important to seek professional debt advice as soon as possible.

Credit card debt might be the most common type of debt in the UK but it doesn’t mean it’s any less problematic.

You could clear your debt sooner with the help of Your Debt Expert. Our team can help find a debt solution tailored to your needs that will help you take care not only of your credit card debt, but your total debt. For more support contact us on 0800 082 8086.

Where can I get more advice on Credit Card Debt and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started