Personal Finance | Interview Answers | Winning CVs | Beat the Recession

Credit Card Debt Advice

Awash in credit card debt? Here are some strong pointers for how you can manage your way out of financial trouble.

We know that collectively we are carrying more on our credit cards and mortgages than any previous generation. The average household has debts of around £38,000, with many of us owing between six and twelve times our household's annual income.

Debt's the way to do it

We're debt junkies. Go to college and come out with a qualification and a pile of bills. You've chanced on a bargain in the sales but you're a bit short this month? No problem - stick it on the credit card. Whether it's buying a house or a car or just paying for Christmas, resistance to debt has never been lower.

Somewhere along the line, we've succumbed to the delusion that owing money is sophisticated. We look on that elderly uncle who'll only buy something when there's cash in the bank to pay for it as some kind of financial ingénue rather than as a model of financial prudence.

And, of course, it's getting ever easier to pile up the debt. Credit card companies seem to fall over themselves in their haste to bump up our credit limits, and then send us a letter telling us the 'good news' that our capacity for debt is now that much greater. Damn their eyes.

Even worse, they're now sending us blank cheques every few weeks. Aside from the fraud risks posed by these unsolicited letters falling into the wrong hands, these cheques usually have punitive conditions - no interest-free period, a transaction fee and often less than attractive interest rates.

Don't get me wrong. Used sensibly, credit cards can be a neat budgeting tool, which can provide a bit of financial flexibility. And borrowing money via your credit card can be extremely positive if you use it to buy smartly. If, for example, you had used your credit card to buy some tickets for a big theatrical or sporting event and then put them up for sale on eBay, you can make a tidy profit. Part of the trouble is that most of our credit card spend tends to go on buying liabilities rather than assets. Borrowing money to buy things that go down in value is a very bad habit to develop.

According to some estimates, most households in the UK have at least five active credit cards, including store cards, at any given time. Do you know what your total credit card debt is? Do you know what rates of interest you're paying on the cards you use? Chances are they vary quite widely.

Target your most expensive cards

Here's my advice. Find the card that's charging the highest rate of interest and focus on paying that off as soon as you can. Don't add to your woes by using it to buy anything else. All those other cards? Just send them the minimum payment until you've cleared public enemy number one. Once that's done, turn your financial firepower onto the card with the next highest rate of interest. And so on.

You might be thinking at this point that a suggestion to clear off your credit card debt is hardly ground-breaking advice. Maybe it isn't, but I do know that poorly managed credit cards are the source of many a mate's financial woes. Also, there's a world of difference between people that understand the concept of good credit card management and those of us who adopt an active strategy. As the wise old Chinese proverb says (although thinking about it, maybe it's a Klingon bon mot), 'Thought without action is sterile.'


Custom Search