Reduce Your Credit Card Debt!

Credit card debt is one of the easiest debts to acquire and can be one of the most difficult to get under control or eliminate. Unlike a loan, which is likely to have a fixed level of borrowing, pre-arranged repayment costs and term, a credit card offers the apparent ‘ease’ of making minimum payments and all the while it’s still possible to increase the debt through further purchases and interest incurred on the unpaid balance remaining! Of course, credit cards do have their spending limits, but as anyone who has ever had a credit card will be able to verify, increasing the limit on your credit card can be far easier to do in the short term than actually paying it off in the longer term!

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So What Exactly Is Credit Card Debt?

There are three levels of credit card debt to consider:

  1. The first level of credit card debt is any unpaid balance remaining after making a payment: this is the 'debt' that is owed to the credit card company and it is this unpaid balance upon which the interest is charged. This is why to make credit cards work in our favour and not the credit card company's, the aim should always be to pay off the balance in full each month.
  2. The next level of credit card debt is to be ‘in debt’ to a credit card company, to the point that only the minimum payment can be achieved (which largely pays off part of the interest and very little of the balance each month). At this level of debt, even if the card is cut up and there is no further spending on it, it is likely to be a long time and cost a significant amount of interest before the debt is paid off (this situation is often more costly and will take longer than taking out a loan instead). If this situation is starting to arise, it is important to speak to the credit card company to request advice and assistance with the management of the debt, particularly if a change of circumstances such as illness, redundancy or bereavement has led to difficulty in reaching even the minimum payment.
  3. The final level of debt is to have such as significant balance owing that the minimum payment on this each month is out of reach of any regular budget. At this level of debt with a credit company, it is important that action is being taken to remedy the situation, such as discussing a debt management plan with the credit card company directly, or through a neutral debt management service such as those offered through the Citizen's Advice Bureau.

How to Eliminate Credit Card Debt

The first step towards eliminating credit card debt is, without doubt, to take control of the situation. This can be achieved in very simple ways, right from the first moment of realizing that the credit card debt is careering out of control:

* Cutting up the existing card so that no more purchases can be made. This might seem to be a negative, destructive thing to do, but it’s the most positive step that can be taken to prevent further debt.
* If the credit rating is still good enough, switching to another credit card that is offering 0% interest on balance transfers is a great way of eliminating any extra interest for a few more months. However, taking this step means ensuring a few essential additional actions:
* Cutting up the new card as soon as it arrives – remember that this new card is for paying off, not adding to the balance;
* Making a note on the calendar for the month before the 0% interest runs out. At this stage, if there is still a debt to be paid, this is the time to swap to another card which is offering 0% interest on balance transfers – it’s surprising how often these come up! Using comparison websites will help in identifying the credit card that will offer the most benefits, such as additional loyalty points or cash-back incentives – but also watch the small print for hidden extras like one-off fees. If necessary, continue with 0% balance transfers regularly until the debt is fully paid off.

* If there are any family savings at all, it’s very unlikely that the interest the savings account pays is higher than the interest being paid out on the debt, so any savings will earn / save more money by using them towards paying off the credit card debt.
* Often, if credit card debt is seriously out of reach of paying back, this is part of a wider debt problem, again often triggered by death, divorce, redundancy or illness. In this case, it can be most useful to consider undertaking a debt management programme to help identify both the positive ways of dealing with the debt specifically and in managing budgets and spending generally until finances are back on track.