Credit Card Debt Management Can Help You To Get Out Of Debt
Credit cards have become integral to our modern way of life. They are easy to use, flexible, widely accepted and avoid the need and challenge of carrying large amounts of cash. With the current Consumer Credit laws, they also provide useful additional backup protection in the event of supplier failure and goods defects.
Many of us use several credit cards; usually a combination of an affinity store card and a bank supplied one using one of the two major global payment systems, Mastercard or Visa. Other more common providers are American Express and JCB. All company's require a minimum amount to be repaid per month. This is usually defined as either 5% of the balance on the account, or a fixed amount, say £10, whichever is the greater. This minimum payment makes sure that you are still 'in touch' with the provider and some, albeit small, amount of cash moves each month to pay down your balance. The whole balance can be repaid if preferred – and this will help to keep the interest charges on the account to zero.
However, if the full balance is not paid on the due date, then interest will be calculated on the whole balance and carried forward to the next month's statement where the whole cycle starts again. Interest rates on credit and store cards do not tend to be low – this form of short term borrowing can be quite expensive with interest rates easily 10% to 15% above the Bank Base Rate.
Therefore, if you plan to use your credit cards for extended periods of short term borrowing before paying off the balance, there are a number of ways to reduce the cost and make your pounds go further.
Competition in the cards' market is fierce and there are lots of good deals around for those that look. Whilst there may be incentives to take out and pay for goods on store cards (many offer 10% discount on the initial purchases made on the day the card is applied for) it does not make sense to use them for borrowing. Likewise, many of the bank cards have high rates of interest that change infrequently over time.
Credit card debt management is now a cottage industry. The art of moving balances from one, or several, cards to a lower cost card provider is both easy and straightforward.
The first, and arguably most important, criterion is that you have a good credit history. If you have been frequently rejected for credit, have a history of defaulting on payments or County Court Judgements then it is unlikely that you will get a better deal than those you currently enjoy. Credit card companies want only the best customers with a good record of paying off debt.
Secondly, if you plan to pay off the balance within a short period (say 6 to 12 months) then you should look for the best 0% balance transfer deal available. This means that you will apply for a new credit card with the offering company and, once accepted, ask them to arrange to pay off your existing card(s) and the new balance will be interest free for the offered period. Some companies will charge a fee (up to 2.75%) of the balance to be transferred but this will get you up to 16 months interest free on the balance. If you can pay off the balance quicker (say under six months), then the fee can reduce to zero with certain providers such as with the Abbey Zero or the Ulster Bank Gold Card.
It is possible to regularly move card providers to make sure that you get the best deal. However, this requires a level of dedication and attention to detail as the offers vary and move quickly.
If you plan to repay the debt over a longer period, then look to providers such as Barclaycard Platinum who currently offer 6.5% interest the lifetime of the balance transferred. Balances over £5,000 are charged at 6.9% but these rates are only for those with the very best credit history. CapitalOne offer 8.5% on their lifetime balance offer until 2012. Be warned, though, that any additional payment on these cards will attract their highest rate and this cannot be repaid until the transferred balance is repaid. Therefore, these cards are not advisable for additional spending!
If you have large amounts of debt on cards that can only be repaid over a longer term then you should consider a fixed rate loan rather than juggling credit cards. This way you will benefit from the certainty of fixed repayments at more affordable rates and free up your credit cards for short term purchases.