A guide to tackling credit card debt

Getting into debt can be worrying, especially when you’re unsure how to pay it off. Read our guide on how to get on top of your finances by reducing your credit card debt.

Getting into debt can be worrying, especially when you’re unsure how to pay it off. Read our guide on how to get on top of your finances by reducing your credit card debt.

Rob Silvey
Finances expert
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Last Updated 9 JUNE 2022

How to deal with credit card debt

We can help you understand how to access your credit card debt, budget your finances effectively and monitor your credit score as you reduce your debt.

Review your finances

If you’re struggling with debt, the first thing you’ll need to do is review your finances. The easiest way to do this is to add up your income and outgoings, ie your bills and average spending, and work out a budget. Some banks offer free budgeting tools or you can use free budgeting apps to see where you can reduce your outgoings.

Setting a budget also helps you to see where your spending can be reduced. Any savings you make can be put towards paying off your credit card debt.

Assess what kind of debt you’re in

Reviewing your finances will help you to assess what kind of debt you’re in.

Large debts: if you have large debts, you’ll need to put together a plan to start paying off your debt. This could include consolidating your credit card debt and negotiating interest rates with your credit card provider. Ideally, you shouldn’t spend any more on your cards.

Persistent debt: this is defined by the Financial Conduct Authority (FCA) as a continuous cycle of persistent credit card debt for three years or more.

You can find yourself in persistent debt if you only ever make the minimum payment on your credit card. As the debt goes down, the minimum payment does too. This means the debt can take years to pay off and that you rack up more interest over time.

The FCA now requires credit card providers to work with persistent debt customers to help them pay off their credit card debt quicker, rather than simply suspending their card after 36 months of persistent debt (although this may be done as a last resort).

If you’ve been in persistent credit card debt for three years, you’ll most likely receive a letter from your card provider. The best course of action here is to speak directly to your lender and explain your situation. They must consider your circumstances and see if you can both come to an understanding. If you can’t afford their payment terms but show willing to get your debt cleared, they may be prepared to reduce or even cancel interest, fees or other charges.

Debt crisis: this is when you’re unable to pay your basic outgoings, such as rent. It’s not defined by how large your debts are, but your ability to keep on top of all your minimum payments.

If you’re in a debt crisis, you may need to prioritise your debts by whichever has the biggest consequence if you miss a payment. For example, receiving a County Court Judgment (a court order to pay money that you owe) could have a bigger consequence than a late payment on a credit card.

Debt advisors help you set up a budget. They could place you on a debt management plan and negotiate with creditors to freeze interest rates on your behalf. They may point you towards an IVA (individual voluntary arrangement), a Debt Relief Order or even bankruptcy. While this can write off a percentage of your debt, it’s a decision that shouldn’t be taken lightly as it will heavily impact your credit score.

Prioritise your debt

If you have multiple credit cards, paying off the debt with the highest interest rate, instead of the highest outstanding balance, could save you money on interest. This is known as the avalanche method. Once you’ve cleared the debt on the most expensive card, you move onto the next highest interest rate card and so on.

An alternative is to put any spare money towards the card with the smallest balance. When that card is fully paid off, you put the funds you’d set aside for the smallest debt, plus any spare cash, to the next lowest balance card. This is called the snowball method as it gains momentum every time you pay off a debt.

Whichever method you choose, remember that you must keep up the minimum repayments on all your other credit cards.

Consolidate your debt

If you have multiple lines of credit, such as credit cards, an overdraft and loans, you may be able to consolidate these debts into one monthly payment. This can help to lower your monthly repayments by spreading the debt over a longer period, although you could pay more in interest overall.

Ways to consolidate your debt include:

  • Balance transfer cards These can help you consolidate credit card debt by moving the balance from one card (or multiple cards) where you might be paying interest, to a new card with a 0% interest rate for a set period of time. This means everything you pay will go into clearing your debt, rather than paying interest. However, it’s important that you clear the balance before the interest-free period ends and follow any conditions that apply for maintaining your interest-free period, such as paying on time.
  • Money transfer cards Allow you to transfer cash into your current account, which you could then use to pay off a credit card, reduce an overdraft or loan, or cover any other expenses. Look for a money transfer card with an extended interest-free period. You may have to pay a fee on the cash you borrow.
  • Debt consolidation loans These come in two forms: secured and unsecured. If a loan is secured against your home, you could lose your home if you don’t make the repayments. When you take out an unsecured debt consolidation loan, your assets (property) aren’t at risk if you fail to make the repayments. But because this is a higher risk to the lender, you’ll need a good credit score to get this type of loan.

Be aware that taking on a new debt is a big decision, as extending the term of your debt can incur more interest and cost more in the long run. 

Debt consolidation: loan vs credit card 

Personal loans can offer lower rates of interest than typical credit cards, but would be more expensive than an interest-free credit card (if you’re eligible for one). A loan might also offer a longer timeframe to pay back your debt, but you may find you pay more interest overall.

Negotiate interest rates

You may be able to negotiate lower interest rates with your credit card provider if you have a good credit score and make your repayments on time. If your interest rate is reduced by even just one or two percent, this could add up to considerable savings.

Monitor your credit score

Your credit score may be negatively impacted if your debt has resulted in you making late payments on your credit card or going over your credit limit.

Credit monitoring lets you keep track of your credit score on a regular basis when you’re trying to rebuild your credit score. Some credit agencies offer free constant access to your full credit report, others require a monthly fee.

If you’ve kept up with your minimum repayments and have stayed within your credit limit, you may have a good credit score even if you have large debts. This can put you in a better position to consolidate your credit card debt and overall debt at a lower interest rate.

Our top tips for managing your credit card debt

  • Leave your credit card at home so you’re not tempted to spend on it and avoid online shopping sprees that you haven’t budgeted for.
  • Set up a direct debit so you never miss a payment. If you can, set it up to pay more than the minimum payment each month.
  • Don’t use your credit card to withdraw cash. You’ll be charged higher interest and additional fees.

Compare credit cards

If you’re considering consolidating your credit card debt, it’s a good idea to compare cards from some of the UK’s most trusted providers. When you compare credit cards with us, we’ll only show you cards you’re likely to accepted for, without impacting your credit score.

For more advice if you’re in debt, get in touch with your bank or contact a free debt counselling agency or charity.  Avoid organisations that want to charge you a fee as this money could be better used paying off your debt.

You can get free debt advice from Citizens Advice, National Debtline or StepChange Debt Charity.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

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