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Credit Card Debt Help & Advice

Credit cards are a convenient way to purchase items now and pay back in instalments at a later date and allow you to spread the cost of larger purchases. They can also be a useful tool to use if something unexpected happens, for example, your boiler suddenly breaks down and you need to get it fixed.

It is important to remember credit cards are not the same as debit cards, it is not smart to use them for cash withdrawals as there is typically a fee involved, plus a higher interest rate.

One benefit of having a credit card is they are protected by section 75 of the Consumer Credit Act, meaning anything you purchase between £100 and £30,000 using a credit card is protected meaning if the item is faulty or if the company goes bust, you will receive a refund from the card issuer.

Many people choose to book holidays using a credit card over their debit card because of this.

However it is essential to remember that credit cards are a form of unsecured borrowing – if you don’t pay the balance off in full each month and choose to only pay off the minimum amount, the interest will start to mount up, meaning your debt can quickly spiral out of your control.

Using a credit card for everyday living costs can be risky, unless you can pay the balance in full each month.

Interest is calculated as an annual percentage rate (APR), many lenders will offer interest free periods – but watch out as this can encourage you to spend more- even if you have a card that orders free balance transfers or 0% interest, there are always costs involved.

Used wisely credit cards are a great tool, however if you aren’t careful, debts can soon build up out of your control and take some time to pay back.

Average UK credit card debt

Bank data revealed in January 2018 that the average credit card debt in the UK has reached more than £70bn, this works out as £2,568 per household!

Common causes of credit card debt

A credit card is a relatively simple form of borrowing, but it can quickly become a costly source of problem debt. Common causes include:

  • Accidentally going over your credit limit and incurring fees
  • Forgetting to make the minimum repayment or paying it late
  • A change in circumstances meaning you can’t make the minimum payment

Ways to stay on top of your credit card bills

  • Set up a standing order so you always make the minimum payment
  • Make an additional payment on top of that if you can afford to
  • Set aside enough money each month to pay back what you spend
  • Use a comparison site to find a lower, or zero interest deal so you can pay off more of the balance each month.
  • In most cases, credit card companies make money by charging you interest on your balance. So it’s important to either try to pay off the full balance each month, or remember to account for interest payments if you don’t.
  • When money is tight, it’s tempting to pay off just the minimum balance, but doing this will cost more in the long run and it will take longer to clear your debt. Your balance will steadily grow and if you do this for long enough, you’ll end up owing a lot more than you spent.
  • If your circumstances suddenly change, or you make a mistake, you can quite quickly find yourself in trouble.

Consolidating your credit card debt

Consolidating your debts means you substitute multiple debts into one larger repayment. One method available to credit card holders is to transfer the balances of various credit cards to a new one.

Many lenders offer introductory deals on balance transfers, however it is important to check the fine print for additional fees, to ensure you don’t end up paying more thank you need to back.

You can also take out a personal loan to consolidate your credit card debt into one manageable loan. A debt consolidation loan pays off your existing debts and transfers the money you owe into one single loan, meaning you have one monthly payment rather than a few.

It is important to note with these loans you need to pay back the full amount and may end up paying back more than originally owed as there are some fees associated with the loan.

Read more about debt consolidation here.

Writing off credit card debt

If you need debt help and are struggling to pay your credit card debts there are various insolvency options here to help your write them off. For example:

England, Wales and Northern Ireland

Scotland

It’s worth noting these may not be suitable for everyone as they will have an effect on your credit file and there are some fees required. It’s important to get advice when you are struggling with debts, our helpful advisors are on hand to provide the best solution for your situation.

Getting a mortgage with credit card debt

Many people believe having any kind of debt will ruin your chances of owning your own home, however having a credit card doesn’t mean you will automatically be rejected from getting a mortgage.

There are various factors that lenders take into consideration when dealing with mortgage applications, for example, how much debt you have as a percentage of your income and how many credit cards you have. If purchasing a home in a couple both partners’ debt and income levels will be assessed.

Lenders will add your credit card repayments to your monthly outgoings when calculating whether or not you would be able to afford your mortgage payments.

Most lenders will typically assume a repayment of 3% to 5% a month on credit card debt. This may affect the amount you can borrow as having credit card debt to pay back will reduce the amount you have available to make your monthly repayments.

You should ensure any unused credit cards are closed as the more cards you have the higher your credit utilisation rate is. Most lenders like this rate to be below 30%, however this is not set in stone and it will vary from lender to lender.

Before submitting your mortgage application you should consider the following:

  • Close any unused credit card accounts
  • Make regular payments to build our credit history
  • Pay off as much of your debt as possible to bring down your debt to income rate
  • Use a specialist lender – they tend to be more flexible on affordability assessments however they normally charge a higher interest rate

Credit Card Interest Charges

In most cases, credit card companies make money by charging you interest on your balance. So it’s important to either try to pay off the full balance each month, or remember to account for interest payments if you don’t.

When money is tight, it’s tempting to pay off just the minimum balance, but doing this will cost more in the long run and it will take longer to clear your debt. Your balance will steadily grow and if you do this for long enough, you’ll end up owing a lot more than you spent.

If your circumstances suddenly change, or you make a mistake, you can quite quickly find yourself in trouble.

What to do if you have credit card debt

If you are struggling to even make the minimum payment on a credit card, it’s time to contact Creditfix and talk to one of our trained advisors.

Call us now for immediate and confidential free credit card debt advice or complete the form

We can start to work through your debt problems as soon as you contact us. Our advisors are trained to provide the best advice for your situation.

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