This is a collaborative post.
I am 41 now but when I was younger I wish I had a big sister to tell me about credit cards and talk through them with me so I could avoid mistakes I made. Here I will be your big sister and tell you 8 things you should know when dealing with credit cards that I wish I knew, or that I knew but didn’t pay attention to when I was younger. Hopefully, it will help you avoid debts and manage your money as well as possible.
Collection agencies will chase you
It is easy to think that when you owe money it can just be forgotten and it will go away. Unfortunately, this is very rarely the case. Collection agencies can and will chase you. They will ring you, write to you, and may even visit you.
The way they work is that they buy the debt from the lender and then try to get what they can back. For example, if you owe the bank £600 they might have given up hope of getting it back from you themselves so they sell it to a collection agency, maybe for the cost of half the debt.
Sometimes the agency will do well as they will recover all the debt from the debtor, other times the debtor will go bankrupt, get an IVA or similar and they will lose money. It is in their interests to get as much as they can from you but they can often be more flexible in the amounts and time frame as they just want something back.
Repayments can be negotiated
If you are struggling to pay back £50 a month then you can often negotiate to have interest frozen and pay back less as long as you are not adding more debt to the account. It is always worth asking because they can be open to reducing what you pay and want to make it manageable for you.
Getting new credit cards actually can help
I am not saying that you should get yourself into more debt but to swap your debt onto a new credit card. If you have a £1000 debt with 23.9% apr you will be paying a lot more than the £1000 if you are paying only small amounts such as the minimum payments.
If you have a good enough credit score you can get a balance transfer card and transfer that debt. These often have offers such as 0% interest on balance transfers for 9 months. This means for 9 months every penny you are paying off reduces the debt and none is paying interest. If you are savvy you can do this a few times to different cards and never pay interest.
Think about who you are paying
Who do you owe money to? Are there debts that are accruing that could be avoided? For example, could you cancel a phone contract to reduce your debts? This is also a great time to look at whether you should consider consolidating all your debts into one payment a month. There are agencies who can arrange this for you, learn more about those and see if it could work for you.
Alternatively, you could work out the amount you can afford in total and pay back pro-rata to each creditor. I remember once having a monthly payment of 89p for one debt, but they stopped chasing me as they could see that was all I could afford for that one.
Being honest with your debtors helps
There is no point telling your debtors that you can pay £100 a month and then default because it is just not in your budget. This will affect your credit rating severely. Instead communicate with them as they can make changes to your debt, reducing fees, transferring it to a lower interest rate or even writing some off that has been added in fees. If you don’t tell them you are struggling they can’t help, they are not psychic!
Drawing up a budget makes a difference
When you are trying to work out what you can afford to repay it is important to draw up an honest budget with all your incoming and outgoings. Even something as simple as paying £2 a fortnight for the wheelie bin to be cleaned needs adding to the budget. When you have everything down you can see your true financial situation.
Focus on priority debts
Debts considered priority debts should always be paid first. These are mortgage/rent, tax bills, council tax, water rates, gas, electricity etc. All your creditors will understand that these priority debts need to be paid first and then any money left can pay them. If you need help working out which are priority debts or how to explain this to your creditors then a charity like Stepchange can help.
It can get better
If you are feeling helpless and that these issues will be around your neck forever then please don’t. They will take time to resolve but I promise it can get better and just addressing the issues can lift a weight off your shoulders knowing that you are dealing with the debts and they are gradually reducing. Worrying about debt can affect your sleep as well as every waking moment. Addressing your worries could really help so why not make that first step and do something today.
Always seek advice independently before making big changes to your debts if you are not sure. Free advice is available from your local Citizens Advice service.