Avoiding The Credit Card Debt Trap

Getting yourself into serious credit card debt is so easy to do and every year thousands of people in the UK run into financial difficulty because of excessive spending on their plastic. Credit card debt can affect anyone from single mother to rock star to successful businessman and it is estimated that out of the 60 million or so credit cards in circulation in the UK, 70% still have an outstanding balance on them. In addition, it is thought that around 5% of people in the UK have put mortgage or rent payments on their credit card in the last year.

So what can be done to avoid getting yourself into a credit card mess? Here are some tips:

Live within your means

Tip number one seems obvious but debt problems normally start when an individual increases their expenses every month without doing a proper assessment of whether they can afford it or not. Putting extra expenses on a credit card can become a habit and putting off paying the balance until ‘some point in the future’ also comes all too naturally for some people.

To avoid this situation it is a good idea to use a budget to work out what you can afford each month and ways that you can reduce your outgoings. It is also a good idea to review the budget constantly, especially if your income or lifestyle changes.

Balance transfers

Many card companies currently offer zero percent interest on balance transfers to their card for a period of up to eighteen months. By doing this you can not only save hundreds of pounds on interest but your outstanding balance will also be paid off a lot faster.

If you do decide to go down this route there are one or two things you should note however. Firstly, you should be aware that most companies will charge you around 3% of the total balance to transfer the balance across. You also need to keep on top of your finances and know when the interest is going to start being charged. If there is still a balance on the card at this time then you can repeat the trick again by applying for another zero percent card.

An emergency fund is better than an emergency card

You often hear people say that they only carry a credit card ‘for emergencies’. It is always better to put away some money away into an emergency fund every week than to have to use a card if an emergency does occur.

If you find you have money spare at the end of each month, find a savings account with the highest interest rate. If the worst does happen and you do need to drain the emergency savings account, it is preferable to having a large credit card bill to pay off which accumulates interest.

Don’t use your credit card as a cash card

Not only is withdrawing cash with your credit card a tell tale sign that you have a burgeoning debt problem but your card company will charge you a cash advance fee on top of the interest if you withdraw cash using your credit card. As mentioned above, if you are desperate for cash it would be better to dip into your savings account if you have one.

Sense the first sign of trouble

Sometimes credit card debt can sneak up on you before you know it. It is therefore a good idea to be able to sense the first signs of trouble. These include having to use your card to pay for essentials such as food, clothing and fuel, doing frequent balance transfers to avoid payments, withdrawing cash with your credit card and skipping one credit card bill to pay another.

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