What is credit card debt?
A credit card is a credit facility that allows you to borrow money and spend the money on a credit card up to a fixed credit limit, which can be used to make in-store and online purchases.
Credit cards offer revolving credit, which means you don’t have a fixed number of repayments like a personal loan does. You can repay some of the credit and then use the credit again in the future.
The amount you spend on the credit card will be subject to interest, which gets added to your credit card debt at the end of each month. Many credit cards offer an initial period of 0% or lower interest before reverting to the usual interest rate.
Due to the lower introductory interest rate, some people use a credit card as a loan. As soon as they repay the money they need, they will close their credit card. This could save you money compared to using personal loans.
Don’t worry, here’s what to do!
There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.
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Is credit card debt unsecured?
Yes, credit cards are a type of unsecured debt.
This means as the borrower, you won’t be required to use an asset as security within the credit card agreement, such as property. Therefore the credit card company won’t have an automatic right to force the sale of one of your assets should you fail to repay.
This doesn’t mean the credit card company won’t be able to recover an unpaid credit card debt. They won’t be able to take your house instantly, but they could use other methods to get their money back.
How is credit card debt built up?
A credit card debt builds up by not repaying your credit card balance in full each month. By not repaying the full amount spent on the credit card, interest will be added to the outstanding balance, causing the debt to grow.
Credit card debt builds up when you make a minimum payment on the credit card instead of paying the credit card balance in full.
What is a minimum payment?
A minimum payment on a credit card is the minimum amount you need to pay back on your credit card each month. You’re obligated to make minimum payments each month, which is based on your credit card balance.
Your minimum payments may need to be manually transferred, or they could be taken as part of a direct debit payment. You are usually given the option if you want to pay by direct debit.
You should aim to pay more than the minimum payment, preferably a payment to clear the full debt, to avoid paying more interest.
How long does it take to pay off a credit card?
There is no fixed repayment period on a credit card as it’s a type of revolving credit you can keep accessing. The length of time to pay off a credit card depends on your ability to make full repayments without using more credit.
If you get into credit card arrears, the length of time it takes to clear your arrears will depend on your financial situation and the debt solution you’re using to clear the debt. More on this later!
Could you write off some debt?
- Affordable repayments
- Reduce Pressure from people you owe
- One simple monthly payment
How long can you be in debt on a credit card?
As long as you keep making the minimum repayments, you can owe money on your credit until the credit card issuer asks you to repay in full. They must give you sufficient notice if they want to close your credit card and ask for full repayment.
How can you clear your credit card debts faster?
You can clear your credit card debt faster by contributing as much of your disposable income to clear the debt as possible. This will reduce the debt but also reduce the amount of interest applied to your debt.
Is credit card debt at an all-time high?
According to data released by The Money Charity, the amount of credit card debt as of August 2022 is just over £62 billion with the average household credit card debt standing at £2,244.
This is around an 8.5% increase from the year previous and has resulted in more people seeking credit card help.
Does having credit card debt affect my credit score?
Having a credit card debt will be recorded on your credit file and how you handle that debt will affect your credit score. Your score can be positively or negatively affected by your credit card debt.
Read on for the details.
How does a credit card affect my credit score?
If you have credit card debt and you keep up with repayments as agreed, your credit score will improve. This is because you are proving that you can manage your finances effectively in line with debt repayments.
On the other hand, there is such a thing as too much credit card debt! Taking out a credit card and failing to make the minimum repayment will cause your credit score to decrease.
If I pay off my credit card in full will my credit score go up?
Yes, if you clear your credit card balance in full, there’s a good chance that your credit score will increase. However, it could depend on the method used to clear your credit card debt. If you used a balance transfer credit card to clear the debt, you may not see an increase.
One of the reasons that your credit score improves when you clear the credit card debt is that you reduce your credit utilisation ratio. A credit utilisation ratio is the percentage of your available credit that you have used.
For example, if you have maxed your credit card balance, you’ll have a 100% credit utilisation ratio. And if you clear your credit card balance completely, you’ll have a 0% credit utilisation ratio.
Your credit score will improve if you keep your credit utilisation ratio below 30%. For example, if you have a credit card limit of £2,000, your score will be better if you only use £600 of your balance at any time.
What happens if you have credit card debt?
If you have credit card debt you’ll need to at least make your minimum monthly repayment. If you are struggling to repay, it’s best to contact the credit card company as soon as possible. They might be able to give you a repayment holiday to prevent missing a repayment.
If you cannot pay your credit card debt and the lender isn’t offering you a payment holiday, you will miss your minimum monthly repayment. If you miss two repayments, you will receive a reminder to pay from the lender. If you fail to repay after the credit card issuer gets in touch, they can register the credit card account as defaulted. They will close the account and send you a default notice.
Will credit card companies take you to court?
Yes, if you default in paying back your credit card, credit card providers can take you to court to try and recover the money owed. They will ask the court to issue a court order which makes you obligated to pay.
Once the court order has been issued, you must make arrangements to repay the credit card debt in full or make a new payment arrangement with the credit card company. If you fail to pay or miss another payment within a repayment plan, the lender could take further action.
The lender can go back to the court and ask a judge to use debt enforcement action. The method of enforcement action can differ.
Will the credit card company use bailiffs?
If you have failed to repay after a court order told you to do so, one of the debt enforcement actions the lender could ask to use is to use bailiffs. The credit card issuer will employ bailiffs to recover the money or seize your assets to be sold at an auction and clear the debt.
Dealing with bailiffs is best avoided because it can be stressful. But it can also be expensive. Bailiff fees are added to your debt.
Can you negotiate credit card debt?
You might be able to negotiate new minimum repayments if you’re experiencing unexpected financial difficulty. The credit card company could offer to help you through an unstable period or even pause your repayments for a fixed term.
How can I cut interest on credit card debts?
There are three ways that could potentially help to reduce or remove the interest applied to your credit card debts. These are:
- Asking the creditor to reduce or remove the interest due to financial difficulty
- Asking the credit to freeze interest as part of a Debt Management Plan (DMP)
- Using the balance transfer loophole to move your credit card debt to a new card with no interest or lower interest
We will explain option 3 in further detail shortly.
How should I pay off my credit card debt?
If you cannot pay off your credit card debt through monthly repayments, you might be able to use a debt solution to pay off the credit card debt more effectively and in a cheaper way. The best debt solution for you will depend on your personal circumstances.
A debt charity can assess your situation for free and make a recommendation. They can often set the debt solution up for you as well. Further information regarding your options can be found via our debt info page.
Can I pay a credit card with a credit card?
Yes, it’s possible to use a balance transfer credit card to pay off existing credit card debt. This may be done as part of a debt consolidation method, but it primarily saves you money on interest to help clear the credit card debt faster.
A balance transfer credit card is a special type of credit card that is exclusively used to pay off existing credit cards. The balance of the (multiple) existing credit cards is transferred to the new card and a balance transfer fee is added. This fee usually equals 1-2% of the amount transferred.
The benefit of using one of these cards to pay off your credit card debt is that balance transfer cards usually have highly competitive interest rates. There can sometimes be an initial interest-free period, which increases your ability to clear more of the debt off initially. But be aware of what the interest rate switches to after the introductory period.
Can a family member pay off my credit card?
Some credit card companies will allow an individual to take out a balance transfer credit card and use it to pay another person’s credit card off. This isn’t available through all lenders, so you’ll need to ask the question before applying for a balance transfer card with this intention.
More information about balance transfers can be found in our post: Can You Balance Transfer Someone Else’s Credit Card?
What should I do after I’ve paid off my credit card debt?
Once the credit card has been paid off, it’s wise to close the account to avoid using more of the credit and getting into further debt. But you might want to keep it open for individual reasons.
Can you go to jail for credit card debt?
No, you won’t be sent to prison for failing to pay a credit card or personal loan. The lender can take legal action that may result in the use of bailiffs or money taken from your wages. Or the lender might petition to make you bankrupt. But you cannot go to jail.
Can credit card debt be written off?
Credit card debt can be written off when you use a debt solution that forces the credit card company to write off some or all of the debt. Or it could be written off if it becomes too old to be collected (more on this in the section below!).
An Individual Voluntary Arrangement (IVA) could help to write off some of your debt, whereas a Debt Management Plan would help you freeze interest and charges while you repay through affordable monthly payments.
You also have the option to ask the credit card company to write off your debt directly. But this is rarely fruitful.
Are you struggling with unaffordable debt?
- Affordable repayments
- Reduce pressure from people you owe
- Lower monthly repayments
What happens if I don’t pay my credit card for 5 years?
If you don’t pay or acknowledge your credit card debt for five years in Scotland, your debt will become too old to be collected. It isn’t exactly written off, but the creditor can no longer take legal action. And without legal action, you’re never forced to repay.
The same applies in England and Wales. However, you mustn’t have paid or acknowledged the debt for at least six years before it becomes too old to be collected. If a court order has already been made for you to repay, the debt can never become too old to be collected.
Can I still be chased for credit card debt after it’s been written off?
Once the credit card bills have been written off, the debt no longer exists. Therefore you cannot be chased for a credit card debt that has previously been written off.
Will my credit file show my credit card debt has been written off?
A written-off credit card debt usually shows up on your credit report as paid. However, any previous missed repayments or defaults will also be recorded on your file. All records stay on the credit report for six years before they’re automatically removed.
How does credit card debt affect getting a mortgage?
Having a credit card debt will be considered within mortgage applications. These debt repayments will be factored into your financial situation and will somewhat reduce your borrowing power.
If you’ve been repaying your credit card responsibly, your credit rating may have improved and could help you get approved for the mortgage. But if the opposite is true and you don’t have a good credit rating, your credit card debt or arrears could stop you from getting a (better) mortgage deal.
What happens to my credit card debt if I move abroad?
You will still owe your debt to UK creditors when you move abroad, but it can be more difficult for the creditor to recover the debt from you. The creditor might have limited jurisdiction in the country you’ve moved to.
Sometimes, creditors will employ debt collection agencies in other countries to chase UK residents who have moved abroad without repaying their debts. Even if a UK debt collection agency cannot track you down, the business could have a sister debt collection company in your new country that can.
What happens to debt when you die?
When someone dies owing a debt, the debt is repaid from the deceased’s estate if possible. Some debt repayments take priority over other debt repayments. If there is no money left to repay the debt, the debt will be wiped.
The exception is if you take out a joint debt. If you have a joint debt and the other person passes away, the full debt will become yours.
What happens to credit card debt after the death of a spouse?
If your spouse passed away with a credit card, the debt would need to be repaid from their estate. However, there might be other debts that need to be repaid from the estate first, leaving no money to repay the credit card debt.
If there is no money left to repay a credit card debt after death, the credit card debt will not become the responsibility of another person, including that person’s spouse, partner or another family member.