What to do when your credit card bill comes
I wonder how many people will wish they hadn’t spent so freely on their credit card when the bill lands on the doormat this month. Sadly, at this point it’s too late for regrets – the excesses of Christmas have come home to roost.
Many people cite the 20 January as the darkest day of the year. Not only is payday still some way off, but for many people this is the day that their Christmas credit card bill is popped through the door.
According to Credit Action, consumers make around 21.9 million card purchase transactions every day with a total value of £1.05 billion.
For many people, opening their most recent bill will be a reality check but something they can cope with. But for others, the figure owed will plunge them into despair as they fear they will be unable to clear the balance.
A quick glance at the minimum repayment required might provide some relief.
But failing to pay off as much of the balance as possible (or, preferably, all of it) will only worsen your debt pain down the line.
Let’s say you owe £2,000 on a credit card racking up interest of 17.2% - it may shock you to learn that, if you only make the minimum repayment (£29) each month, it will take you a whopping 26 years and two months to clear the balance.
You’ll also end up handing over more than £7,000 in interest to your credit card provider.
Will a 0% credit card balance transfer solve my debt problems?
One way to clear your outstanding credit card debt is to move this onto a 0% balance transfer card.
If you are confident that you are able to cope with your debt levels, then moving onto a 0% balance transfer credit card could be a good move – assuming you are able to get one.
You should also remember that if you miss a payment, the provider will not only hit you with financial penalties but is also likely to cancel your 0% deal and start charging you interest.
Set up a direct debit with the credit card company to pay at least the minimum amount in time to make your first payment.
However, if you are unsure whether you’ll be able to clear your debt after the 0% period ends, then bear in mind that moving your debt might cause you problems down the line.
If you later feel unable to cope with your debt and decide to provide an individual voluntary arrangement or debt management plan, then the new credit card provider may well decide not to support you.
The reason for this is simple; as it has only just advanced the money as a new lender, it requires payment as per the agreed terms. Had you sought professional advice with your debts before moving to the new 0% balance transfer, then the chances of your credit card company supporting any debt option would be much greater.
Where can I go to get help? Click here for the contact details of organisations that can help you for free
Debt management plan
Not to be confused with a consolidation loan or bankruptcy, a DMP is a service offered by a specialist debt management company that will negotiate with your creditors to change the terms of how they get their money back. The debt company will renegotiate your debt repayment terms and then deal directly with your creditors on your behalf, and you then pay the debt management company, which passes the money to your creditors minus its initial and subsequent monthly fee. This can be as high as 20%, which means you’ll pay down your debts slower than you thought.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.