In 2018, the outstanding amount of credit card debt in the UK increased by 4.7% to £44.8bn. This is the highest level on record, and suggests that some consumers may be finding it difficult to repay their outstanding debt.
With that in mind, here are several means through which an individual may be able to regain control of their credit card debt. Clearly, the most suitable method depends upon personal circumstances, with every consumer having different requirements depending on their own financial situation.
Consider a balance transfer One of the most obvious means for an individual to take control of their credit card debt is to obtain a balance transfer card. This allows debt on existing credit cards to be transferred to a new credit card that benefits from a 0% interest rate for a set period of time. This can drastically reduce an individual’s interest costs and could make it easier for them to repay their debt faster.
At the time of writing, it is possible to obtain a balance transfer card with 0% interest on transferred debt for up to 32 months. For an individual with a £2,000 debt who pays £150 at an APR of 18.9%, transferring to a balance transfer card could save around £239 in interest costs, assuming they continue with their current level of repayments.
Be aware that some balance transfer credit cards charge a fee for transferring existing debt. Although the fee may be less than the interest saved, it is still worth taking into account before deciding whether to go ahead with a balance transfer card.
0% interest on purchases For consumers who know that they will make a large purchase in the near term, it may be sensible to obtain a card that offers a 0% interest rate on purchases for a set period. In some cases, this is included as part of an introductory offer for a credit card. For example, a card may offer a 0% rate on all purchases made in the first six months of account opening.
This could significantly reduce the amount of interest paid on debt arising from new purchases on the card. This could make it easier to repay the debt, and may lead to an individual clearing their outstanding balances at a faster pace than they otherwise would have been able to.
Rewards/cashback While rewards cards and cashback cards may not offer particularly competitive rates of interest, they could allow an individual to maximise the benefits they receive from day-to-day spending. A cashback card such as the American Express (NYSE:AXP) Platinum Cashback Everyday Credit Card offers 1% cashback on all spending at the time of writing, with it currently having no annual fee. Rewards cards could be even more appealing, depending on an individual’s shopping habits, with vouchers for their favourite stores potentially being of greater interest than cashback.
Of course, a rewards card or a cashback card will not help reduce an individual’s debt directly. However, the rewards or cashback received may improve their financial position compared to if they had used credit cards that do not offer any rewards or cashback.
Takeaway With credit card debt in the UK continuing to increase, consumers may find it difficult to manage their existing credit card balances. Through products such as a balance transfer card, 0% interest offers or a rewards card, it may become easier for an individual to regain control of their credit card debt.
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Motley Fool UK 2019