Few people would deny that using credit cards can make day to day
life more simple, reducing the need to carry cash and making it easy to
shop online and by telephone.
However, spending with plastic can sometimes be a little too
easy, as it doesn't always feel like you're actually parting with any
money. This means the temptation is to spend without thinking about the
consequences too carefully, until you hear the ominous thud of a huge
credit card bill hitting the doormat.
If you've been caught out
like this, the size of your card debt may seem overwhelming, but don't
panic - there are a few simple steps you can take to start getting your
debt back under control.
Try and make a little more than the minimum payments:
The
minimum payments required by credit card companies have steadily fallen
over the years. Where once it was typical to have to repay a minimum of
5% of your balance every month, it's now common to only have to pay
2.5% or 3%. With repayments this small in proportion to your debt, a
large chunk of each payment gets swallowed up in interest charges.
Depending on the APR rate of your card, up to 75% of each payment could
be 'lost' in this way, meaning that it takes a very long time for your
balance to reduce to any great extent.
By trying to repay more
than the minimum, even if only by a little, you can speed this process
up, and in the long term you'll end up paying much less in interest
charges.
Prioritize your card debts:
If you have
more than one card with different rates of interest, it makes sense
concentrate on the one with the highest interest charges. This means
not just the one with the highest interest rate, but the one which
actually charges you most each month, which could have a lower rate but
a higher balance.
Check your statements to see which card is
costing you most in interest each month, and try to focus on repaying
this card first by putting any spare cash you have into extra payments
while keeping to the minimums on your other cards.
Change your card:
The
credit card market is very competitive, and rates have fallen over the
last few years. You may be stuck with an old card charging an old rate
that is much higher than newer cards. If you can get a new card with a
lower rate and transfer your account balance on to it, you could save a
lot in interest charges, helping you to bring down your debt. If you
can get a card with an introductory rate on balance transfers then all
the better - you'll get a few months of interest free credit which you
can use to really drive down your balance as 100% of each repayment
will be helping to clear your debt.
Debt consolidation:
If
getting a cheaper card isn't an option or isn't something you feel
happy about, then maybe a consolidation loan would be worth
considering. If you take out a loan and use the money to pay off all
your card debts, you could benefit from a lower rate as loans are
normally quite a bit cheaper than credit cards.
The downside to
these loans is that the repayment period might be quite long, and so
even though your monthly repayments will hopefully be lower, you'll
stay in debt for longer and so end up paying more in interest. Done
carefully, however, consolidation can be a sound move if there's little
chance of clearing your debt in any other way.
Watch your spending!
All
the above strategies for getting your debt under control will only work
if you stop getting deeper into debt - and this means stopping spending
on your cards. Ideally, you'd cut them up so that you can't use
them again, but this might not be realistic as you may need to keep
them as a credit option in an emergency. In any case, cutting your
spending to an absolute minimum while keeping your repayments as high
as possible is the only sure strategy to clearing your debt in the long
term.
Article provided courtesy of http://www.cardsense.co.uk, where you can compare UK credit cards including balance transfer offers and low APR cards.
