Millions of people manage their daily finances using their credit cards. Have you ever considered what life would be like if you weren't able to use your credit card, dip into your overdraft, or take out a loan when you need to pay for a large item like a new car or home improvements?
It's far too easy to become dependent on using credit cards for day-to-day living. One way to protect yourself from future turbulence in the credit markets is to get into a position where you don't need so much credit.
Easy enough to say, but how do you start to get rid of your credit card debt?
The first step towards reducing credit card debt is to admit to yourself just how much trouble you're actually in.
Work out your income and expenditure and see how much you owe. Try using the free budget calculator on the Money Helper (previously the Money Advice Service) website.
Once you've done this, you'll have a much clearer picture of your situation and will be able to spot areas where you can save money.
Once you've looked at your budget, it's time to get brutal. Set yourself a goal of trying to reduce your monthly outgoings by, say, £100. Look at your household bills – can you save money anywhere? Can you share a lift into work to reduce your fuel bills? If so, then you can use this extra cash to lump money into the debt each month. Cut back on all but the essentials and you may not only have the chance to pay down your debt, but you could reduce the need for credit in the future, too.
Another great way of reducing your debts is to cut the interest payments.
A good place to start is to shift your debt to a credit card that offers a 0% balance transfer card deal. By doing this you will be able to stop paying interest and tackle the actual debt itself. However, keep a close eye on the balance transfer fee, as transferring a large debt (or more than one – you may want to look at consolidating if you've got more than one credit card) can incur a charge which can be around 3%, which is added to your existing debt.
You'll also need to be disciplined: you'll need to pay enough off each month in order to clear the balance by the end of the interest-free period, as the 0% interest balance transfer period will only last for a limited period. 0% balance transfer periods are now available for well over two years, but you would still need to make more than the minimum payment each month in order to reach your debt-free goal.
Once you have reviewed your monthly outgoings and cut costs where possible, prioritise those debts with the highest level of interest (unless you're able to switch to a 0% balance transfer credit card – see above). While doing this, you should ensure that you can still make all the minimum repayments on any other debts you may have.
Depending on the level of your combined debt it may be worth looking into consolidating all your debts with a combined personal loan. This will allow you to bring everything into one place, so you can focus your monthly payments on a single place over a fixed period.
If this is the path that you choose to go down, it may be advisable to cut up your credit cards and close the credit account as well to ensure that you don't risk running up any additional debts. If you've still got debts to consider after this point, you'll again want to switch your attention to the next most expensive on the list – over time, the amount of cash that you throw at your debt will get larger as other obligations are paid off, and eventually you'll be clear of all your debt.
Another good way to help with repaying credit card debt repayment as quickly as possible is to consider getting a second job. Even if this is only for a couple of hours a week, you may be able to earn an extra £100 per month, which you can use to pay off your debts. It isn't for everyone, but if you're serious about becoming debt-free, it could be a great short-term solution.
After the hard work you've put in to getting out of debt, don't lose the plot and go back to your old habits. After all, you've done really well to get this far, so why not keep going?
Why not set a new goal to try to get a couple of months' wages set aside in a high interest savings account. This can act as a nice financial safety cushion, and if you've paid off all your debt, you'll ideally have a bit of disposable income left over each month. Don't waste it!
The main thing to take away from this is that you are not alone in your situation. There are thousands of people in the same position as you. The most important thing is that you are looking for ways to address the situation, which is the first step on the path to eliminating credit card debt.
If you are moving your loan(s) onto a 0% balance transfer card, remember to check the balance transfer fee as this will be added to your debt.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.