Unlike other credit agreements, to some extent, it's possible to decide how much credit card debt that you pay off each month. When struggling to meet your outgoings, making the minimum monthly repayment each month seems like the perfect answer, but it isn't.
If your balance is £5,000 with an 18% APR, paying the 2% minimum means that credit card debt repayment takes 47 years 11 months. During that timeframe, a colossal £10,978 of interest will have been paid. The banks don't offer this facility because they're kind, they do it to make money.
Credit Card Debt Repayment Methods
Nobody wants personal debt to continue indefinitely, so take action before interest payments eat up a higher percentage of your disposable income. There are many personal measures and debt solutions that can help alleviate financial difficulties.
- If savings are available, reduce credit card debt as much as possible. Earning 0.1% in a current account isn't any use when 18% APR is charged on the money owed. If savings aren't available, clear as much as you can afford each month.
- If missed and late payments aren't an issue, there are many issuers that allow consumers to perform a balance transfer and enjoy 12 months of interest-free credit. In the example above, this would save £900 in interest payments. Use the money saved to further reduce your debts so it has a snowball effect.
- Never use credit card checks or take out a cash advance because these attract a premium rate of interest. However, they are cheaper than payday cash loans.
- If a personal loan is available at a better rate of interest, borrow money to settle higher APR personal debt. However, be careful not to use the old credit facility again.
- If a credit card agreement was signed-up to before April 2007, it is worth checking to see if it constitutes a legal agreement under the Consumer Credit Act 1974. For example, the agreement might not be enforceable if the card provider increased the credit limit without the cardholder's authority. This is only available in the UK.
How to Clear Credit Card Debt
There are several debt solutions available to struggling borrowers. These include an Individual Voluntary Arrangement (IVA), debt management plan or Debt Relief Order (DRO). These work by either reducing monthly outgoings to a more affordable level or by eliminating personal debt.
Don't allow credit card debt repayment to continue indefinitely as it will only mean interest payments and further charges. Look for ways to gradually reduce the amount you owe or clear personal debt with a debt solution. Your approach will depend heavily upon how much you owe and your credit score.
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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