Many of us rely on credit cards to help us make ends meet when our wage doesn’t stretch as far as we need it to. The problem we face is becoming too reliant on our cards, using them to purchase things we can’t afford, giving no thought to how we will clear the debt.
According to the latest Personal Debt Snapshot by R3: Association of Business Recovery Professionals (the insolvency trade body), 47 per cent of Britons are concerned about their debt; and of these, 53 per cent are particularly worried about credit card debts (an increase of 5 per cent on the last quarter).
Of course, the best advice for those who are worried about credit card debt would be to only use your credit card when you know you can afford to; this may mean that you physically have the money in your bank account and can use this to clear the debt at the end of the month, or that you will be receiving a wage that can cover it. Unfortunately we cannot always stick to this advice; if we could there wouldn’t be a need for credit cards at all.
For those times when it is necessary to spend extra, there are three golden rules to help keep things in check. Firstly, don’t fall into the trap that just because you have accrued one debt you must continue doing so. Get that first debt under control as your main priority before considering spending anything else on your card.
A common mistake people make is to acquire a second credit card so they can pay off the debt of the first; while it can be beneficial to move to an interest-free card if your existing one is now charging interest, it is not a good idea to accumulate more credit cards just to clear another debt. All too often this has a snowballing effect, where you rack up ever-increasing debts.
Should you find that you have built up debt across numerous cards and you are unable to pay these off then it is worth remembering that free independent advice is available from organisations such as the Citizens Advice Bureau and the National Debt Line.
Secondly, know what you are spending. The worst thing you can do is lose track and end up spending huge sums of money on interest, so make sure you know what you’ve bought and what it costs; this way you can pay off the most important or expensive things first and work out a plan to reduce your debt into manageable monthly repayments.
Finally, if you possess multiple cards, use the right one for the right purchase and make use of the interest-free period. It is sensible to spend some time researching credit cards and comparing the deals on offer.
R3 Association of Business Recovery Professionals president Frances Coulson warned: “Households that are already struggling may find traditional lenders unwilling to provide further credit and are therefore drawn to short-term credit solutions. Individuals turning to short-term loans and credit cards should be wary of the high interest rates that often accompany these products. Overall debt can quickly snowball out of control.”
Essentially, the best advice is to be as careful and as sensible as possible. Avoid using your credit card or only use it to purchase things you know you can afford, as this will help boost your credit rating.