Now that the summer holiday season is at an end and autumn is on the way, many people could be anxiously waiting for their credit card statement to arrive so they can check out the damage. If you've overspent, fear not – there are things you can do to minimise any long-term issues and get your spending back on track.
Can you afford to pay the bill from your income? This will always be the ideal scenario, as it means you're clearing your debt in one quick hit and needn't worry about making future repayments. Just make sure you can actually afford to repay it in one go – if you find that you have to turn back to credit by the end of the month, it won't have actually achieved anything and could lead into a cycle of over-reliance on credit. If that's a possibility, just pay as much as you can afford (and at the very least, always pay the minimum amount), and use one of the next few methods to cover the rest.
How about your savings? If you've got a healthy savings fund that you can call on, now could be a great time to cash in. Hopefully you'll have an easy access account for this very kind of occasion, allowing you to instantly withdraw the amount you need to pay off your credit card and get back to normality.
For those cautious about using their hard-earned savings for such a reason, just think about the money you could end up spending on credit card interest compared with the amount you could earn from a savings account – with savings rates at record lows, any returns are likely to be negligible, so it could make far more sense to clear your debt and prevent the credit card interest spiralling. Just make sure you've still got enough in your savings account to constitute an emergency fund.
Could you take out a balance transfer credit card? For those for whom the first two scenarios aren't an option, another possibility could be transferring your credit card balance to one which offers 0% interest for a set term. This could be an ideal solution – balance transfer credit cards can give you up to 41 months to clear your debt without interest being added to the bill, with the only extra charge you need to worry about being the (often small) balance transfer fee.
Just make sure that you've got a high enough credit score before you apply, and that you're comfortable taking on another form of credit. Also remember to avoid spending on your previous card (and on the balance transfer one, as purchase rates will often be high), and make absolutely certain that you can pay off the balance in full by the time the interest-free period comes to an end to avoid interest being applied.
What about a personal loan? If you've racked up a serious amount of debt over the summer and want a clear route out of it, opting for a personal loan could be a solution. You'll still be charged interest but it'll be at a far lower rate than many credit cards – personal loan rates currently start from just 3.2% APR, far lower than the average purchase rate of 22.8% APR – and once the term of the loan comes to an end, you'll be debt-free. Again, you'll need to make sure that your credit score is up to scratch, but for some, it could be a solution.
After you've sorted out your debt from this summer, it's time to think about the next one – if you start saving for it now, you hopefully won't be feeling a debt hangover in a year's time!
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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