How To Reduce Credit Card Debt

How To Reduce Credit Card Debts

Credit cards can be useful tool to manage your finances and help with the occasional unexpected expense however the balances and re-payments can easily become unmanageable. Credit card debt is a problem for many people. You may start with just one credit card, but then open another and another. In fact, having multiple credit cards makes it difficult to keep on top of what you owe. This can lead to increasing debts which keep on building up causing stress and anxiety. So how can you get this under control and reduce your credit card debt?

Table of contents:

    Types Of Credit Card

    In order to reduce credit card debt, it is important to understand what types of credit cards there are and how they work. In addition, it will help to understand the laws surrounding credit cards. As a result, you will have an easier time getting the debt under control.

    Co-sign credit cards

    These are credit cards you can get if you do not have a good credit score on your own, most of the major credit card companies do not offer this service. You must find someone to co-sign for you in order to get one. Both people are equally responsible for the debt, if you don’t pay on time the co-signer will have to. If you pay off the balance, or at least the minimum payment, every month, the co-signer won’t have to worry about paying extra for someone else’s credit.

    Store credit cards

    Store cards are credit cards that you can usually only use at a specific store or group of stores although some are issued in partnership with other credit card companies and can be used anywhere.  

    Reward credit cards

    These credit cards give you points or rewards when you shop with them. For example, for every pound you spend, you get a reward point. If you spend £150, for example, you will get 150 rewards points. You can then use these credit card points to buy things for free or at a discounted price.

    Increased credit or ‘credit builder’ credit cards

    Credit builder cards are aimed at people who have a poor or no credit score. They usually have low credit limits and high APR (Annual Percentage Rate) and are designed to minimise the risk to the card issuer. 

    If you manage your credit card properly by paying in time and in full every month then this should help improve your credit score meaning you can apply for a higher credit limit or a card with better terms, such as a lower interest rate or one that offers promotional rates or rewards. However, every credit card issuer has their own system, so there is no way to know exactly how they decide to increase credit limits.

    How To Reduce Credit Card Debts

    If you want to reduce your debt, here are five tips that will help you.

    • Contact us here at Care About Money and discuss the options available to you, from consolidating debt to setting up an IVA.
    • Apply for a promotional rate credit card. If successful ensure you cancel the old card after you have transferred the balance to remove the temptation to continue spending on it. Consider how long the promotional rate lasts for and make a plan to pay off the balance, or as much as you can before the interest rate increases. 
    • Pay more than the minimum payment if you can possibly afford it.  What ever the interest rate on the card paying only the minimum payment will mean that it takes a long time to clear the balance of the debt.
    • Prioritise your payments to make them more effective. Try to pay more towards the card with the highest rate of interest so that this balance is cleared first.
    • Make payments on time and don’t allow the cards to go over their agreed limit. Paying late and going over the agreed limit usually incur additional charges and, in some cases, mean that you lose any promotional rate of interest.
    • Consider contacting the credit card company and asking them for help. They may be able to reduce the rate of interest for a few months or, in some cases, even suspend payments, however, be aware that this may have a negative impact on your credit file.

    How Credit Card Laws Protect You

    The Consumer Credit Act regulates credit card purchases but also gives your protection when you enter into a loan or hire agreement. It also gives you the right to a cooling off period. 

    Consumer credit in the UK is regulated by the Consumer Credit Act 1974, amended in 2006. As well as the Financial Services and Markets Act 2000. 

    The legislation covers:

    • the information you should get before you enter into a credit agreement
    • The content and form of credit agreements
    • The method of calculating annual percentage rates of interest
    • Procedures relating to early settlement, default or termination 
    • Credit advertising
    • Additional protection credit card purchases costing more than £100 and up to £30,000.

    Furthermore, if you believe that you have been unfairly denied credit, you can ask the credit provider which credit reference agency they used.  When you apply for a loan, the card company or provider may apply to a reference agency to check your credit history. This is the information it uses on whether to give you a card or a loan. 

    Hence you are entitled to contact the agency to get a copy of your credit file, which they have to provide for £2.  You can contact one of three credit reference agencies; Equifax, Experian or CallCredit.

    Who To Speak To If You Need Help With Credit Card Debt

    Remember, if you’re struggling with credit card debt, you’re not alone. Contact Care About Money immediately to discuss your situation and the range of options available to you.