High APR credit card debt has increased over the past decade. This is due to rising household bills, unlimited wants and borrowers making 'just' the minimum monthly payment each month. The open nature of agreements means that debt could take decades to clear.
Termless borrowing leaves consumers in a quandary. Should a consumer consider debt consolidation through an unsecured loan or secured loan? Is a debt solution, such as a debt management plan or Individual Voluntary Arrangement (IVA) of greater assistance? The answer depends largely on a combination of affordability and whether a bad credit rating due to loan default is already an issue.
The Minimum Monthly Payment on Credit Card Debt
Making the minimum monthly payment only serves to clear the interest. The capital isn't repaid meaning that balances can last for up to 40 years. It is sensible to reduce household spending in order to make more than the minimum monthly payment and reduce personal debt.
Debt Consolidation
An unsecured loan is a great way of consolidating high APR credit card debt. Provided a borrower doesn't have a bad credit rating, an unsecured loan has the advantage of a defined term and a competitive APR. It also serves to simplify family finances and helps prevent late payment fees.
Many consumers struggling with card debt choose debt conolidation through a secured loan. Whilst this allows a consumer to borrow a larger sum of money at a lower rate of interest, turning unsecured into a secured debt on the family home ia rarely a sensible move.
Credit Card Debt and Debt Solutions
Those unable to pursue debt consolidation with an unsecured loan due to a bad credit rating may wish to consider a debt solution. Options include a debt management plan or an Individual Voluntary Arrangement. A debt management plan is most suitable for those with more modest levels of debt. An IVA is generally the preferred option for home owners with liabilities in excess of £15,000.
The Consumer Credit Act 1974 and Credit Card Debt
Consumers that have signed-up to an agreement prior to April 6th 2007 may find that they have an unlawful credit card agreement. If this fails to comply with the implied terms of the Consumer Credit Act 1974, personal debt could be written-off and/or compensation awarded.
Individuals who are troubled by credit card debt should check to see if the agreement complies with the Consumer Credit Act 1974. If not falling into the 60% of people affected by unlawful credit agreements, consider seeking an appropriate debt solution if a bad credit rating or affordability are an issue.
Other relevant articles of potential interest:
- What debt reduction programs are available?
- Is credit card debt settlement really effective?
- Credit card debt management services
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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