Mounting Credit Card Debts In The UK

Credit cards are one of the most common debt problems in the UK. Britain has more credit card borrowers than any other European country and the International Monetary Fund expects defaults to increase in the coming months.

Causes of debt

Kiran Mistry an insolvency practitioner from WMProserv said there are several reasons why credit card debts accumulate. Firstly, many people have multiple credit cards with different providers and so missed payments and high interest rates on some of these cards can lead to a build up of debt. Many people don't change their credit card provider when an initial offer rate expires and this leads to high interest charges, increasing the amount owing on the card.

Another main reason for credit card debt is general overspending. Many people spend significant sums on credit cards with the expectation that they can pay off the debts in future by, for example, bonuses or by remortgaging their home. The credit crunch impact on both income and property values has left many people with high levels of unsecured credit card debt that they are unable to repay.

Shopping around

For those people with a number of credit card balances it is often prudent to shop around and find providers offering low rates of interest for "balance transfers". Many credit card providers offer an initial period with 0% interest and may offer a low interest rate for the lifetime of the balance.

By transferring debt to another provider it will significantly reduce your interest payments and allow you to repay the actual credit card debt more quickly.

Budgeting

Moe Nawaz from UKAdvice.com advises, the first step when dealing with spiralling credit card debts is to devise a monthly budget planner. This will help you work out how much is available for repaying these debts after other essential bills and living expenses have been taken into account.

Another key step is to prioritise the credit card debt. It is important to look closely at the interest rates and charges being levied by your various credit card providers and to make steps to repay the most expensive cards first.

It is also important to set up an automatic direct debit or standing order payment for your cards. This will ensure that the minimum payment is made every month to avoid any additional charges.

Freezing interest

Once a budget planners has been created it is often a good idea to speak to your credit card providers to discuss the possibility of them freezing the interest payments on your debt. By presenting them with a carefully constructed budget planner (which also includes all other loans, cards and unsecured commitments) you can make a strong case to the provider and negotiate a payment regime that suits your budget.

Many people find their minimum payment is only slightly higher than their monthly interest costs meaning it would take years to repay the debt. By negotiating payment terms with the card providers it is possible to ensure that the capital is repaid much more quickly.

Formal solutions

If you simply cannot manage the level of credit card debt after taking the steps above it may be necessary to consider a more formal solution to your debt problem. This might take the form of an Individual Voluntary Arrangement (IVA) or even bankruptcy. In these situations it is vital that you seek professional advice from an insolvency practitioner or turnaround consultant in order that you can determine exactly the right option for you.

Kiran Mistry (Insolvency Practitioner) wmproserv.co.uk
Moe Nawaz (Business Turnaround Consultant) ukadvice.com
Kiran Mistry and Moe Nawaz have a combined experience of over 30 years in the Insolvency and Turnaround business. They have helped and advised 10,000's of business owners in the UK.