Credit cards can be a great source of liberation, enabling us to do things or buy things which we would otherwise be unable to afford, but used carelessly they can also become a crippling anxiety. If you are in the position of having several credit cards with escalating interest and insufficient income to pay them off, then you need to act to remedy the situation and now is the time. Pretending that there is not a problem and limping on from month to month in the hope that something will turn up is not a good strategy. It might take a while to get your finances back on track but once you’ve started to take corrective action, you’ll feel a whole lot better.
Prioritise your debt
Take a cold hard look at your debt and think strategically. It makes sense to pay off your most expensive or most time sensitive debt first. Make sure that you understand exactly what you are paying and how the interest is accruing. What is the APR – annual percentage rate – on the cards you hold and are there additional charges?
Switch to a 0% credit card
These cards can help you pay off your current debt by enabling you to transfer debt from one or more credit cards, that you pay interest on, to a new 0% interest card. The 0% interest rate will only be available for a fixed period, after which a higher rate of interest will apply to any outstanding balance. Ideally you need to clear your balance before the interest free period ends but if you can’t manage this, making the minimum payment each will still go some way to reducing your balance. There is often a one-off transfer fee, usually about 3% of the amount transferred, but there are some cards which offer a 0% per cent transfer and 0% on purchases. The better your credit score, the better the APR you’ll be offered. Remember, late or missed payments will always incur a financial penalty.
Make extra money
You might snort and say, ‘Yeah right’ but this is not as difficult as you may think. If your work has the opportunity for overtime, then that is an obvious route but even if that’s not an option there are plenty of other ways that you can increase your income. The amounts that you can generate may seem small but if you are able to establish several income streams then you can then use this money to target your debt. Dog walking or becoming a part time cycle courier might be appropriate options but there are also a surprising number of ways in which the internet can help you generate an income.
Check if you are due PPI
If you had a credit card prior to 2006, you may be due a handy windfall in compensation for mis-sold payment protection insurance.
Lock your credit cards away
Paying for items in cash will help you focus on what you need, not what you want, but can’t afford.