Credit card crisis - 6.7m people have a card problem

Close up of credit card security chip.

Almost 14% of Brits have been carrying credit card debt for at least three years - that's 6.7 million people. What's more, almost one in ten have been carrying their debt for five years or more - costing themselves a small fortune in interest.

Londoners are the most likely to have credit card debt overall - with two fifths of those surveyed admitting to having a balance on one or more of their cards. They were also the most likely to carry debts over a long period of time, with 16% of Londoners with a balance saying they have had a credit card debt for more than five years.

Is this so worrying?

It's perfectly possible to borrow sensibly on a credit card. If you have a major an unavoidable expense to meet, then buying it on a credit card with 0% on purchases for a while allows you to spread the cost so it is paid off by the end of the interest-free period.

Alternatively, transferring a debt onto a balance transfer cad with an interest-free period, gives you the breathing space to pay off your debts before accruing interest.

The trouble is that the new research, by Go Compare, found that we're not doing either of these things - we're borrowing, failing to pay our debts off, and paying an astonishing sum in interest.

Things aren't going to get better in a hurry either. Some 14% of people expect to have a credit card debt throughout the next year; 7% will need to ask friends and family for financial help; 6% will need to take out a 0% balance transfer credit card; and 5% said they will need to take out a loan.

Unsurprisingly, 14% of Brits say they are seriously worried about their finances with 15% saying they tend to run out of money before the end of the month - and a significant minority (6%) admitting they rely on credit cards to make ends meet.

One in 10 of those surveyed said that their credit card and other unsecured debt was their biggest financial worry for the next two years.

Matt Sanders head of money at Gocompare.com, commented: "Persistent credit card debt is a real problem for many people, trapped in a cycle of minimum payments and mounting interest. Much of the money owed on credit cards is made up of the interest charged on the debt, so it's important to try and repay the balance as quickly as possible. If you can, pay more than the minimum repayment each month. If you have more than one card, always pay off the most expensive one first".

What can you do?

He suggested tips for paying off your debt:

Take control
When your statement arrives, don't ignore it; your debt will increase as interest is added to the outstanding balance.

Don't just make the minimum repayment
Card issuers add interest to any outstanding balance so the longer you take to repay the debt, the more money you will owe. If your debts are spread across more than one card, pay off the most expensive card first.

Switch your credit card.
Transfer your credit card balance to a card with an extended interest free period on balance transfers – these usually charge a small balance transfer fee of around 3% which will initially be added to the debt. But, it's still worth doing if you can get 0% interest for months. Alternatively, if you are unlikely to repay a significant part of your debt during the 0% interest free period, switch to a card with a low interest rate for the lifetime of the balance transferred. This will immediately reduce the interest rate until the debt is paid off.

Avoid fees for missed payments and cash
Card issuers typically charge around £12 for missed payments. Avoid using your credit card as a cash card, the additional charges (between £1.50 and £5.00) make this an expensive way to borrow money.



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Most common causes of debt
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Most common causes of debt

There are some very common reasons for building up problem debts. Here we reveal seven of the most common, and what you can do if you face them.

Unemployment or illness that means one or more of the household’s earners are unable to work will bring a profound change in family finances, and according to the Money Advice Service is the most common reason for getting into problem debt.

If your circumstances change, therefore, you need to immediately address your family finances, and put everything on a minimum spend lockdown. You should also look into the benefits and tax credits that are available sooner rather than later, to try to close the gap.

If you are on the kind of contract that means varying hours, it can be incredibly difficult to work out what you can afford to spend - making it the second most common reason for getting into debt - according to the Debt Support Trust.

Rather than swinging through the extremes from week to week, the best approach is to establish a budget that will work in the leanest of months, so you don't find yourself getting used to the months when you work more hours.

According to Citizens Advice, trying to service too much debt is the third most common reason for getting into difficulties. The TUC found that those with problem debts spend 40% of their income on debt repayments.

If you are in this position, you officially need some help with your debt problems. If you continue to rob Peter to pay Paul, you will end up owing more and more, so you need to take stock and talk to a debt charity about all your options.

The double-whammy of the legal bills combined with the incredible cost of establishing two separate households is enough to make divorce or separation the fourth most common reason for going into debt - according to the Debt Support Trust.

There's no easy solution, but if you are going through this, it can be helpful to talk through your financial situation with someone you trust or a debt charity, who can help you balance a stretched budget.

Problem debts aren’t necessarily caused by a sudden shock to the system. According to the Money Advice Service, 20% of their clients are simply trying to live on an unsustainably low income.

If you are in this category, it’s important to seek help on the benefits and tax credits you may be able to receive. It’s not always easy to navigate the system, but charities like StepChange have experts on the benefits system who can talk you through what’s available.

The combination of rising costs and stagnating wages over the last few years has meant increasingly people saw their monthly wage cover less and less of their monthly outgoings. This position has started to ease more recently, but has left many people far worse off than before the financial crisis. The Money Advice Trust said a combination of this and unexpected costs was responsible for almost one in ten problem debts.

If you consistently spend more than you are expecting, it's well worth keeping a spending diary. That way you can establish the real cost of living, and start to identify where you can cut costs.

The Money Advice Service says it commonly deals with individuals who have struggled to get to grips with budgeting and debts, and have got into debt because they don’t have the skills and knowledge to manage their money effectively.

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