Credit card debt is one of the most common types of non-priority debt as well as one of the most easily accessible. While there are different types of credit cards on offer, they all offer a short-term lending facility that can help you spread the cost of purchases, large and small. They’re also a form of unsecured debt, meaning you don’t need necessarily need to be a homeowner or have any other assets to secure a card.
Credit cards are also one of the only types of debt that revolves – you don’t need to pay off the full amount at the end of your monthly loan term. But this can lead to temptation. With a credit card in your pocket, it’s all too easy to spend more than you can afford, and you could end up facing credit card debt if your financial circumstances change and you fall behind with your repayments. If you’ve found yourself in this situation, remember you’re not alone and there are steps you can take to get back on track.
When you’re approved for a credit card, it’ll come with a spending limit that could range from a few hundred to several thousands of pounds. The exact amount will usually depend on the type of credit card you choose and your credit rating.
Now, you’re ready to start spending. You can choose to clear your balance every month or pay back a percentage of the total amount owed, usually between 1% and 3% and known as the minimum payment. Interest will typically be charged on the remaining balance, which can vary from less than 10% to over 70%.
Not all credit cards charge interest immediately. Some offer an interest free period, and you might be able to transfer your existing balance to a 0% credit card to help you pay off your debt faster.
Credit cards
– Standard credit cards are issued by banks or building societies and come with a set credit limit. You can make an application online or in-person at a branch.
Reward cards
– Reward cards are credit cards with perks. Each time you spend on your card, you’ll earn points that you can trade for rewards like air miles, cashback, or store discounts. Keep in mind that an annual fee may apply, and you might need a strong credit score to qualify.
Credit builder cards
– If you’ve ever missed a payment or had a CCJ, your credit score could have taken a hit. Bad credit scores can make it more difficult to secure a credit card, but credit builder cards are different. These cards are specially tailored to those with poor credit, offering a low credit limit and high interest rate. If you use your card responsibly and pay the monthly bill on time, you’ll demonstrate you’re a reliable borrower and could improve your credit status over time.
Debit card
– While not technically a credit card, debit cards will earn a spot in your wallet as they allow you to spend money that you already have in your bank account. If you do try to spend money that you don’t have, accidentally or on purpose, your card could be declined, or you might end up in your overdraft.
Store cards
– Store cards as issued by a specific retailer and allow you to buy items from that store on credit. Just like a standard credit card, you might be charged interest if you don’t pay off the balance within the agreed timeframe.
Credit cards can affect your credit score in good and bad ways – it’s all about how you use them. If you’re a responsible borrower who doesn’t get too close to your credit limit and makes your repayments on time, your credit card could help you improve your score over time. However, if you struggle to keep up with your repayments, regularly take out money from a cash machine using your credit card, or open several accounts in a short time, your score could dip.
While you might be someone who likes to keep your spending habits to yourself, your credit card provider isn’t quite so discreet. They will share details of your credit card use with each of the three UK credit reference agencies and – depending on your financial habits – this information could also impact your score.
Unsecured debts, like credit cards, aren’t secured against any form of collateral like your house or car. This means they can often be approved faster than secured loans and the credit card company won’t be able to seize any assets to reclaim unpaid debts without taking legal action first. On the other hand, interest rates can be higher with unsecured loans, and you might find it harder to qualify if you’ve had financial difficulties in the past.
Life can be unpredictable. You might be affected by increases in the cost of living, left with a broken boiler that needs replacing, or have been made unexpectedly redundant and, despite your best intentions, be unable to make the minimum payment on your credit card.
In this case, you’ll enter arrears. Your lender will probably contact you to let you know that the payment is late but, if you’re still unable to pay, your account will default, and the card may be cancelled. Further action may also be pursued such as the lender employing a debt collection agency.
If you find yourself struggling to make payments and facing credit card debt, consider speaking to your provider first. They may be able to offer you a short-term solution such as a three-month payment holiday to help you get back on top, but this is all down to your individual provider. And remember, credit cards are a non-priority debt so be sure to pay attention to your priority bills first.
With the huge number of different providers out there and there being no limit on the amount of credit cards you can have, and once you fall into substantial credit card debt, it can be extremely hard to get out of it.
That’s where speaking to an experience debt solution provider such as My Debt Plan has its benefits. We have a team of friendly advisors who offer debt help every day to UK residents.
We can talk through your options and support you to find the right debt management solution for you.
For free advice about your finances and the debt solutions available that can help you pay off your credit card debts, call us on 0161 826 0585.
Tell us about your current debts and one of one of our experienced advisors will talk you through all the options available.
Dependant on your circumstances and financial situation, we’ll look at the solutions so you can choose an option that suits you.
Once you have chosen a solution, we will take the necessary steps to arrange this for you.
Lucy Novo Deakin is a licensed insolvency practitioner in the UK by the Insolvency Practitioners Association (IPA).
My Debt Plan Ltd provides insolvency solutions to individuals, specialising in IVA’s. All advice given is provided in reasonable contemplation of an insolvency appointment. Where you are not suitable for an IVA, we may refer you to one of our trusted partners who specialise on alternative solutions, and as such we will receive payment for the introduction if you enter into a debt solution with one of our partner companies.
Registered address 2nd Floor Blenheim Court, Cheadle, Cheshire, England, SK8 2JY Company Registered in England and Wales Number 10992838 Data Protection ZB284067.
To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
*Our advice on your options is always free. We will always notify you if a solution you choose has any cost.
**Of 2,381 IVA cases approved between January-December 2023, the average expected write off assuming successful completion is 74%.
A debt write off amount between 25% and 75% is realistic, however, the debt write off amount will differ for each customer upon their individual financial circumstances and is subject to approval of their creditors. Any remaining qualifying unsecured debt in your IVA will be written off, however some unsecured debts will be excluded, such as court fines, child maintenance and student loans, therefore you will need to continue paying these both during and after the IVA.
