Credit Card Debt - All You Need to Know, Tips, FAQs & More
Brits owe a total of £69.3 billion in credit card debt as of March 2020.
While this is the first decline in total credit card debt that the UK has seen in a long while. It’s still a monumental amount which goes to show many people rely on credit cards.
While credit cards are definitely great tools to make purchases you won’t normally be able to, they can quickly drown you in debt if you’re not careful.
Today, I’ll be discussing the pitfalls that come with using a credit card as well as how to pay off credit card debt.
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Average Credit Card Debt in the UK
As mentioned above, a total of £69.3billion is owed by the total population of the UK in credit card debt.
Approximately 27 million people entered 2020 with some form of personal debt in their name.
Credit cards are extremely prevalent and also convenient to use which is why it’s very understandable why so many people find themselves with an outstanding balance. This coupled with their high interest rates is generally the reason why many people have trouble paying it back.
Looking over and analysing the average credit card debt in the UK gives us great insight into why so many Brits end up in debt.
How Does a Credit Card Work?
Credit cards are plastic cards that allow you to make purchases for items or even for certain services. They also allow you to withdraw cash from a cash machine.
Every credit card has a credit limit for each month which determines how much you can spend using that card.
The money you spend using your credit card is logged into your account as the outstanding balance. You have to pay back this balance (including interest) regularly in order to stay out of credit card debt.
You can do this in instalments or all at once.
In any case, there is always a minimum payment that you have to make towards your credit card each month. This is usually a percentage of the total outstanding balance on your account.
The interest rate on credit cards is generally quite high. This is why it’s usually a good idea to pay back the outstanding balance as quickly as you can rather than making only the minimum payments each month.
The high interest rate can sometimes even mean you could find yourself in persistent debt. This would mean that your debt would be increasing faster than you’re paying it off.
Some people opt to transfer their balance onto a different card that has a lower percentage of interest or even 0% interest. This can be a great way of effectively reducing the amount of money you owe.
Having a credit card is quite common these days but a lot of people still don’t know all the little nuances as to how they work. It can be good to know all there is to know so you don’t incur any unexpected costs or end up in debt.
I’m Struggling to Pay Credit Card Debt, What Should I Do?
It may seem overwhelming when you realise you can’t submit the minimum payment required by your credit card. However, there are several ways to take care of debt if you’re struggling to pay it off.
If you are finding it hard to pay the minimum payments on your credit card due to a short-term issue such as a temporary illness or unemployment, you can opt to contact your creditor and explain the situation to them.
Depending on your creditor, they might reduce your minimum payments or reduce the amounts you owe altogether.
If you’re struggling due to a long-term issue and you feel you won’t ever be able to pay it back, then I suggest contacting a professional for debt advice.
Remember that even if you don’t have the money to pay off the debt, there are still options available to you such as an IVA or a DRO.
I recommend that you contact an independent charity in order to get free debt advice. They will analyse your situation and tell you which option would be best for you.
Is it Possible to get Credit Card Debt Written Off?
If you feel that you will never be able to pay back your debt entirely, then you can opt for a debt solution which would involve some or all of your debt being written off.
Depending on the amount of debt you have as well as your financial situation, the best option for you may vary.
In this case, I suggest contacting an independent advice service or charity such as StepChange or Payplan. They will help you choose which debt solution would be best for you and they will also help you draw up the proposal for the solution.
Can They Take Your House for Credit Card Debt?
The short answer is no but there can definitely be some nuanced cases where your house could be in danger if you don’t pay off the outstanding balance on your credit card.
Debt on Your Credit Card is a Non-Priority Debt
The debt on your credit card is a form of unsecured debt and unsecured debts are treated as non-priority debts in general. This is because they have far lesser consequences if you are late in paying them off as compared to priority debts and secured debts such as mortgages and income tax arrears.
If Court Action is Being Pursued Against You
If you take too much time in paying off your debts then the credit card company could take out a County Court Judgment (CCJ) against you. If you fail to make payments towards your CCJ, then your assets such as your house could be seized.
For more information on whether or not they can take your house for credit card debt or not, you can click here.
What Happens to Unpaid Credit Card Debt if You Move Abroad?
A lot of people think they’ll be able to escape their debts if they travel to another country but that is often not the case.
In today’s digital age, it’s very easy to track people down. Not only will you not be able to escape your debts by moving to another country but it could even worsen your situation.
The debt collection process may become a lot more complicated and your creditors may opt to pursue court action against you.
What Happens to Unpaid Credit Card Debt after 7 Years?
Many people believe that the debt on their credit card is written off after 7 years. There are several things wrong with this belief.
Firstly, the debt on your credit card becomes unenforceable, it’s not written off. This means that your creditors cannot pursue court action against you but they can still contact you about it. The debt still technically exists.
Secondly, it does not become unenforceable after 7 years, it becomes unenforceable after 6 years.
There are several conditions that need to be met in order for the limitation period to be valid and for your debt to become unenforceable.
If you’re unsure whether or not a debt has become unenforceable, I suggest looking up your credit file for confirmation. You can also contact an independent advice service or charity to get free debt advice.
Can You Balance Transfer Someone Else’s Credit Card Debt?
Balance transferring is something that people do in order to reduce the amount of money they owe on their credit card.
As I mentioned earlier, the interest rate on credit cards is usually quite high. If you can find a card that has 0% or a low interest rate and transfer your balance to that card, you can effectively reduce the amount of money you owe by a lot.
While a lot of people do this for themselves, it’s generally quite hard since you need a good credit score in order to secure a card with zero or low interest.
Another thing that people do is transfer someone else’s debt onto their account. This can be an informal agreement between you and the original debtor so that they are able to reduce their debt.
This debtor could be a loved one or a close relative that may have requested this to you so they could reduce their debt because your card has a lower interest rate as compared to theirs.
They would then make their minimum payment to you every month and you would then pay it to the credit card company.
Alternatively, it could be if you would like to pay off the debt for them yourself.
While this is definitely possible, there are some things you should make sure you know before you balance transfer someone else’s debt onto your account.
What Happens to Debt When You Die?
There’s a lot of confusion about what exactly happens to your debt after your death.
When you die, any debts that you left behind are paid off using your estate.
The executor of your estate is the one who must make sure that all of your money and assets are distributed amongst your creditors fairly and according to the priority order.
If the money and assets in your estate are not enough to pay back your debt in their entirety, then the debt is generally written off.
What Happens to Credit Card Debt After the Death of Your Spouse?
As I mentioned earlier, any debt that a deceased person leaves behind is paid for by their estate. Their loved ones are not responsible for their debt, including their spouse.
Keep in mind that even if you were an additional cardholder on your spouse’s credit card, you will not be liable for the outstanding balance on it. Only the primary cardholder is responsible for the outstanding balance on a credit card.
However, if you owned something jointly with your spouse, there could be a chance that asset could be seized from you.
Credit card debt burdens a large majority of Brits and many of them find it hard to pay back the money effectively.
While it can definitely seem overwhelming at times, I can tell you from experience that if you make sure to be cooperative with your creditors and seek advice from professionals, you can become debt-free in no time.