A credit card allows people to purchase items without having the actual cash. Actually, it works on pay later function as people can resolve their debts with the bank later in the month.
Credit card debt is one type of revolving debt. It means you can easily borrow money every month from your bank without even paying the whole amount. Until and unless you repay enough to owe anything more than the set limit.
It’s important to take debt advice related to your credit card. As recent activity by the bank has asked the borrowers to pay more than the minimum amount every month. Here’s what you can do if you are asked to pay more than your minimum set balance.
Talk to Your Bank
If you are struggling to pay off your debts, then first you should speak to your credit card lender. The government body Financial Conduct Authority (FCA) have warned banks and building societies to waive off or cancel any interest or charges for the customers trapped in a debt cycle.
So, if you are facing a similar situation then talk to the lender and explain your situation. You can also ask the lender if they can do any help in reducing the interest rates that you been charged. This is because you cannot afford to pay any more amount than the set limit.
Banks are also warned by the government to help any customer in need with large overdraft debt. As all banks are looking to charge customers up to 50% to clear off their dues.
Check for a Balance Transfer
If you are being charged high-interest rates on your credit card dues, then its worth exploring if you can shift your account to a 0 percent balance transfer credit card.
This simply means during the 0 percent period, you don’t have to pay any interest amount. Thus, you will have some extra time to pay off your credit debt.
Companies like Barclaycard offers one of the longest 0 percent period about 20 months without a balance transfer fee. Before the period ends, just remember to clear your credit card dues.
Prioritize the Highest Debt
If you have debt pending for more than one credit card and you are unable to pay them off in full each month, then prioritizes the card that has the highest debt pending. That is the card that charges the highest interest rate on your amount.
Debts like rent, mortgage, energy bills or council tax should be given the priority over credit card dues. It is because those debts have far worse consequences than a credit card due.
On the other hand, you can also explain to your lenders about the other debts. Doing it might encourage the lenders to freeze the interest rate for some period of time.
Merge Your Debts
If you have failed to prioritize your multiple debts account then you can merge them all together into a single one. As it will leave only one debt repayment with a lower interest rate each month.
You can also do this by asking your credit card provider to consolidate your multiple credit card debts. Either by shifting it to a personal loan or considering debt advice on a debt management plan.
Moreover, credit card debt is unsecured. Unlike loans, it is not backed up by any piece of property that can be seized if you fail to unclear your dues. Although not paying your credit card bills on time might affect your credit score. So, before you do this ask your lenders about the impact that one will have on your credit score.
So, if you think you will miss any repayment for the consolidate debt, then you should try coming to an agreement by calling the company in advance.
However, don’t try to consolidate if your credit card has a low-interest rate. Also, never put your house at risk with a secured loan until and unless you have talked to a debt adviser first. But if you have bad credit or the amount is too large to be paid then consolidating is possible.
The debt management plan works like a consolidation plan where it deals with all your creditors. It comes to an understanding with your lender to make a minimum payment every month on your debt. But this has a negative impact on the credit score and hampers your ability to take any future credit.
Consult a Free Debt Advice
If you are struggling to pay your debts even after several months of repayment, then consider a debt advice on your credit before they get out of control.
Some charities like Citizens Advice, National Debtline, and StepChange provide a free consultancy to help you prioritize and work out a more affordable repayment plan with your credit card lenders.
Also, they can discuss solutions on a debt management plan, a debt relief order, bankruptcy, or an IVA.
Why is the Card Provider Emailing About Persistent Debt?
The FCA has asked all credit card providers to let you know if your card falls under the Persistent debt category. You will then automatically fall under the persistent debt category if you have made a minimum payment on your credit card.
The FCA or Financial Conduct Authority has stated that all customers who are paying more charges than their account balance for about more than 18 months. Then, they should try increasing their monthly payments.
With the information, they also need to provide or ask about the following things.
- Ask if you increase or repay more of your debts every month.
- It makes you aware if you can choose any alternate repayments option.
- Give you a warning about the consequences if the low repayments continue.
How Likely to Get a Credit Card Suspended?
Suspending a credit card is the last resort as a bank. Ignoring any talks or not increasing your repayments can most likely get your credit card suspended.
If you are unable to increase your monthly payment, then the bank might suspend your card to prevent any increase in balance.
How Much Monthly Payments is Covered with My Balance?
A monthly credit card payment includes the amount with interest and charges + an amount that you owe from the previous month.
If you only pay the minimum amount each month, then it would take a long time to pay due to high-interest rates. Now, if you repay more than the minimum amount then more money will go towards your balance and you will pay off your debt faster.