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How to Combat Credit Card Debt

Love them or hate them there is no denying that credit cards have both great pros and difficult cons, but the cons are few if you use your credit card prudently and always remain in control of your debt and repayments. Problems arise when things slip slightly and your debt gets out of control, once you lose your footing it is very difficult to get back on top of this and you could easily fall into a never ending debt cycle.

It is important to know everything you can about your credit card deal such as the interest fees, charges on both purchases and withdrawals and any other additional fees which come with your card.

Minimum Payments

The first and most important step in being in control is understanding how the minimum payment credit card trap works. It looks tempting to just pay off a large debt with a small £20 or so per month however the maths behind this can be eye opening!

On a £1000 balance just paying the minimum payment of £5 would take you approximately 18 years and 7 months depending on your interest rate, and this is if you make no further purchases on your card, have no late fees or increases in interest which as you probably know, the latter especially is very unlikely. As well as taking nearly 20 years to repay it would cost you £1337 in interest. If your interest rate is higher than 20%, especially if you have a credit card that was designed for rebuilding your credit paying the minimum payment would take even longer.

Increasing the payment to just £20 a month will take off 10 years of repayments and £450 worth of interest fees. £50 per month will reduce the repayments to 2 years and costing only £200. Huge differences and an important consideration to make if you are trying to become financially free from your debts.

Another problem with paying the minimum repayment arises when you are close to the credit limit on your card. If you miss a payment you will be charged a late fee, this will be applied to your balance. If this takes you over your limit you will be charged another fee. At this point the minimum payment would not be enough to cover these fees, the monthly interest and then a sum to make even the smallest dent in your debt.

Balance Transfers

As the trouble with credit cards is the high cost of interest many people find it useful to stop this interest being charged for several months and the best way in which you can do this is by looking into balance transfer deals.

Balance transfers work simply by allowing you to transfer the balance of your credit card onto another credit card and these come with incentives such as 0% interest on the balance for a period of time. This will give you the opportunity to make payments without having the interest being charged on top! During this period you should aim to make as many payments you possibly can before your interest free period ends. Your £1000 balance could be cleared in 12 months just by paying £85 per month!

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