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.

Kelly Whybrow Content Writer
5
minute read
posted

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.

Assess what kind of debt you’re in

Reviewing your finances will help you to assess whether you’re in a ‘debt crisis’ or whether you have large debts. A debt crisis 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.

Large debts: if you have large debts, you’ll need to keep on top of your minimum repayments and put together a plan to start paying off your debt. This can include consolidating your debt and negotiating your interest rates with your credit card provider.

Debt crisis: if you’re in a debt crisis and looking for advice, you can speak to a debt counselling agency such as National Debtline. 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), debt relief order or even bankruptcy. While this can write off a percentage of your debt, this is a decision that should not be taken lightly as it will impact your credit score.

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 Judgement (court order to pay money that you owe) or missing a payment on your mortgage could have a bigger consequence than a late payment charge on a credit card. If you’re in a debt crisis it’s best to seek advice from a debt agency.

Check your credit card statement

Check your credit card statement to see if there are any possible charges you could reclaim, such as late payments fees and charges for going over your credit card limit. If you’ve been charged fees higher than £12, you can try claim the money back from your card provider. If they accept your claim, the provider should offer to repay either the full amount or part of it.

Credit cards

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. It’s also good idea to pay off one card at a time. However, you must keep up the minimum repayments across all of your outstanding credit.

Consolidate your debt

If you have multiple lines of credit, such as credit cards, an overdraft and loans – you can consolidate these debts into one monthly payment, where possible. This can help to lower your monthly repayments by spreading the debt over a longer period and possibly reduce the interest you pay.

Ways you can consolidate your debt include:

Balance transfer cards can help you pay off outstanding 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. However, it’s important that you clear the balance before the interest-free period ends.

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.

Debt consolidation loans 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) are not at risk if you fail to make the repayments.  This is a higher risk to the lender, so you’ll need a good credit score.

It’s always best to use an eligibility checker to see how likely it is that you’ll qualify for a debt consolidation card or loan before you apply for one.

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 just one or two per cent, this could save you hundreds of pounds a year.

Monitor your credit score

Your credit score may be negatively impacted if your debt has led to late payments on your credit card or you’ve gone 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 overall debts at a lower interest rate, so it’s always good to check your credit score.

Credit cards

Each credit rating agency states what a good credit score is on their websites:

  • A good Experian score starts at 700, with 800 considered excellent.
  • With Equifax it is 660 and above.
  • Noddle’s best indicator is a 3+ on its 1-5 rating.

Compare credit cards

If you’re considering consolidating your credit card debt, then it’s a good idea to compare cards from some of the UK’s most trusted providers. You can compare credit cards quickly and easily using our comparison service.

For more advice if you’re in debt, get in touch with your bank or contact a debt counselling agency or charity such as Citizens Advice, National Debtline or StepChange Debt Charity.

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