Credit Card Debt Help: How to Get Back in Control

Why credit card debt is hard to clear

Credit cards charge interest on unpaid balances, and rates are usually much higher than on mortgages or most loans. The minimum payment is normally set as a small percentage of the balance plus interest, so it is designed to keep you repaying for a long time. Paying only the minimum means you pay far more in total. Our guide to how credit cards work explains APR and how interest is calculated.

Step 1: Know exactly what you owe

List every card with its balance, interest rate (APR), minimum payment and credit limitCredit limitA credit limit is the maximum amount a lender allows you to borrow on a credit card or similar account.Read more →. Check your statements and your credit reportHow to Check Your Credit Report for Free in the UKHow to check your credit report for free with Experian, Equifax and TransUnion, what to look for, what a statutory report is and how to spot signs of fraud.Read more → for any cards you have forgotten. See how to check your credit report. Knowing the full picture lets you decide where to put extra money.

Step 2: Build a realistic budget

Work out your income and essential spending, then see what you can put towards your cards each month. Use a debt budgetHow to Make a Debt Budget: A Step-by-Step GuideLearn how to build a simple, realistic budget that helps you understand what you can afford to pay towards your debts each month.Read more → to find money. Our guide to making a debt budget and the budget planner can help. If your essential costs leave you with nothing to spare, jump to the section on free help below.

Step 3: Choose a repayment method

If you can afford more than the minimum on all your cards, pick an approach and stick to it.

1. Avalanche: Pay the minimum on every card and put all extra money on the card with the highest interest rate. This usually saves the most interest.
2. Snowball: Put extra money on the smallest balance first. It may cost a bit more but gives early wins that keep you going.

Step 4: Consider cutting the interest

Reducing the interest rate is often the quickest way to make progress. Options include:

• A balance transfer card: A card offering 0% for an introductory period lets you pay down the balance without interest, though there is usually a transfer fee and you need good credit to qualify. See balance transfer cards explained.
• A consolidation loan: Replacing several debts with one loan can lower the rate, but borrowing more to repay debt has risks. See should you take a loan to pay off debt.
• Asking your provider: Some will reduce the rate or agree a plan if you explain your situation.

If you cannot afford the payments

If you are struggling, contact your card provider as soon as you can. Lenders are expected to treat customers in financial difficulty with forbearance and due consideration, and may offer options such as reduced payments, frozen interest or a temporary break. Explain your situation, send a budget and ask them to confirm any agreement in writing. See how to deal with creditors.

Get free help

If you cannot keep up with your cards, speak to a free adviser at StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, National DebtlineNational Debtline: How It Works, When to CallWhat National Debtline is, who runs it, what it can help with, how to get free advice by phone, webchat or online tools, and what to expect.Read more → or Citizens Advice. They can set up a debt management plan, explain a Debt Relief OrderDebt Relief Order (DRO)A Debt Relief Order is a formal solution for people with low income, low debt and few assets. Learn how DROs work, eligibility criteria and what happens to your debts.Read more →, IVA or bankruptcy, and help with Breathing Space if you need a pause. See free debt advice in the UK. Be wary of firms that charge for something that is free elsewhere.

What to avoid

• Paying cards with other cards without a plan, which often just moves the problem
• High-cost loans such as payday loans or doorstep lending
• Ignoring letters from the lender, which can lead to defaults and court action
• Cash advances on credit cards, which usually cost more
• Paying a company to "wipe" your card debt

Protecting your credit file

Missing payments or defaulting damages your credit file, and defaults stay on for six years. A planned arrangement can limit the damage compared with chaos. Check your reports for errors using how to correct errors on your credit report and learn what moves your score in how to improve your credit score.

A worked example

Imagine you owe £4,000 on a card charging around 25% APR and pay only the minimum. Most of each payment would go on interest and the balance would take many years to clear, at a cost of well over £2,000 in interest. If you instead paid a fixed £150 a month, you would clear it far sooner and pay much less interest. If you moved the balance to a 0% card for 18 months with a small fee, a £150 payment would clear most of it before the interest restarts. The numbers are illustrative, but they show why a fixed payment above the minimum, and a lower rate, make such a difference.

Warning signs that you need help

Seek advice now if you are using one card to pay another, borrowing to make minimum payments, hiding statements or missing payments. These are signs the debt is getting ahead of you. The earlier you speak to a free adviser, the more options you have.