What is Credit Card Debt?
No doubt credit cards have become the most popular way amongst everyone for shopping and buying items from shops as well as paying online. As it gives us the liberty to pay back money installments later.
If used wisely it is definitely a useful tool, but if you fail to do so then surely it can cause plenty of trouble for you and can prove to be an expensive way to borrow.
Let us know what are the risk and how can you manage your credit card debt and credit worthiness.
Credit card arrears- money that is due and should have been paid earlier.
If you due to any reason you are unable to pay the minimum amount on the due date every month, your account will go in deficit. You will definitely get calls from your creditor will contact you to get their default payment.If you still fail to make the demands meet then you will be stated as defaulter and further action may be taken against and the creditor can drag you to court.
Credit card limit
Whenever you get a credit card it comes with a credit limit. This credit limit is judged at various points. Such as people with a poor credit history and have a low limit. These cards have a high interest rate. You can portray a good credit image by paying off your credits on time also you can build up the creditors trust upon you. Irrespective of you having a low or high credit limit, you can have an affordable debts which takes a while to pay back.
You may come across times when your card provider will try to convince you to increase your credit score, especially if you have had a good repayment history. Though it is solely up to you whether to accept or not but you should think twice before agreeing to an increase in your credit limit,
Agree only if you genuinely think that you need it. As some people like to get a higher limit for fun or just for a show, there’s always the temptation to keep spending and but at the end of the day it happens that you run up a debt which you eventually can’t afford to pay back.
Settling Credit Card Debt
How much is the interest and charges on credit card debts that you pay?
- Interest rates varies from 10% to 70% or more. Remember that at the end the rate of interest you’re charged will depend on your credit rating.
- With few of the cards you may even get interest-free 60 days on purchases. This indicates that if you pay within this period you won’t be charged any interest.
- But most will charge interest straight away on money you withdraw from a cash machine.
- If you miss you’ll have to pay late payment charges on top of the interest.
Also read – Cost of Carry Credit Card Debt
Extras that you get when you spend on a credit card
While you spend on your credit card one important benefit that you avail is that you get extra cover on larger purchases.
If your purchases are between £100 and £30,000, then the credit card provider is also responsible for the goods or services provided.
Understand by this example: if you paid for a holiday with a credit card but the company went bankrupt then you can claim the money back. Or the most common example is when you order something online but they don’t arrive you could claim back your money that.This cover applies even if you only paid part of the amount with your card.
Joint credit card debt
Unlike the joint accounts in the bank, there is no provision of having a joint credit card. The credit card account to be in one name. But you can surely avail another credit card for your partner. If your card provider has given you a second card, you will be liable for all of the money spent on both cards. Only you are liable to make payment for both the cards. Even if the 2nd card is for someone else still only you are supposed to make the payment. Hence do think nicely before getting a new credit card.
What is PPI on credit card debt?
Many credit cards have payment protection insurance (PPI) to cover the minimum payments if you became ill or lose your job.
There were many people who did not require these PPI policies still these were sold to them If you are also one of them, then you can ask the credit card provider to refund the payments to you. This could reduce your credit card debt.
Credit card balance transfers
You can transfer balance from your card to another. Though these are a feature of only some credit cards. YOu can try transferring a debt from a card with a high rate of interest to one with low or 0% interest as it can help you pay off the debt faster.
Some cards have a special feature where no interest is charged for only a certain period or for an introductory period where no interest is charged. This period varies for 18 months or more. If you transfer to a 0% interest card, check the rate of interest when the 0% deal ends as this could be high.
Credit cards and your credit file
You can even get help from a genuine and trustworthy credit card debt settlement agency with whom you can share the information with, about the way you use your card. This information can further help other creditors to see and decide how risky it is to lend you money whether.
Your credit file will show the following information about your credit card debts:
- The balance owed
- Your payment history
- Whether your account has defaulted
Other information that are showcased are
- Your credit limit
- How much you’ve spent each month
- How much money you’ve withdrawn from a cash machine each month
It remains very much possible to negotiate terms, interest rates and payments on credit card debt. You may also attempt to negotiate a settlement of the amount owed by you. The steps you employ and the options’ availability will depend to a large extend on your particular situation and the credit card company’s stance you’re dealing with.
When Can You Negotiate With Your Credit Card Company?
In most instances your negotiation strategy is largely dependent on the timing. If you’re having no trouble whatsoever with your payments, you’re very likely to get a better interest rate, while if you find yourself in the midst of financial hot water, you might be able to get better payment terms dates, or even a short reprieve from payments.
When it’s all merry and good
If you’re all comfortable with your debts and have a reputable credit history, you may want to get in touch with your credit card companies and ask for a lower interest rate. While they may initially be reluctant to concede you any benefit. But if you give a slight hint to them that you would consider switching to a card with lower rate, they might agree to work with you.
When you’re under the burden of financial difficulties
Although credit card companies encourage people to call them in circumstances of financial hardship and with inability to pay off debt, some would be amenable to listen to your case than others; so it’s anybody’s guess as to how they’ll respond when you do call them.
Ideally, when you can foresee that there will be a slight delay in your payments or if you perceive making a few days’ change in your regular payment(say moving the date from the first of the month to the middle) would make it easier on you to pay on time, then by all means you should inform your credit card companies. A great number of companies are even generous enough to provide you with relief in case you find yourself out of work, or subject to some illness or family emergency that need tending to.
On the other hand, there are a lot of companies who won’t show any signs of clemency. The moment they get a hint that you’re in some financial difficulty and won’t be able to pay off your debt, they’ll waste no time in cutting off your credit. Therefore, you have to show utmost discernment as to when you plan to communicate, who you plan to communicate with and how much you communicate about your financial woes. So when you do call, get yourself absolutely prepared to respond to the credit card company’s inquiries. At last, don’t let an unpleasant experience with one creditor discourage you – others may take a totally different approach about negotiation credit card debt.
Credit Card Settlement Options
There are a myriad of options available for negotiating a credit card debt settlement. A few of them are mentioned below:
- Moving a payment date
- Reducing the interest rate, or
- Asking for a temporary payment reduction
In case you’re seeking bigger concessions from the credit card company, the credit company will deem it appropriate to cut off your credit until you’re fully paid up, or maybe for an extended length of time too. But if your financial troubles aren’t showing any signs of relenting in a few months times, you’ll probably have to discuss the following possibilities with your credit card issuer:
- Forbearance agreement (no payment) for a period of time
- Long term loan repayment plan with reduced or no interest, or
- Lump sum settlement payment at a reduced amount
Also Read – How To Get Out Of Credit Card Debt? Your Options
Who should you talk to at the Credit Card Company?
Who you talk to at the Credit Card Company largely depends on what you’re trying to negotiate:
- Seeking change of payment date: If all you want is just a change in the regular payment date (likely to coincide with your payday etc), you can pretty much talk to anyone in the customer service to get assistance.
- Interest rate reduction : When the purpose of your call is to ask for a reduction in the interest rate, it would necessitate getting the manager involved.
- You expect a delay in your payment : Most companies have a dedicated department taking care of the calls on such matters. You could simply apprise them of your situation and approximately how late you’ll be in your payments. If you notify them in advance they may be kind enough to even waive off the late fee on your payment.
- Negotiating settlements or long-term payment plans: If you’re calling to explain a more critical situation, the customer service department may not be able to help you at all, despite making claims that they can help. Communicate politely with the representative, but if the conversation seems to be taking a less agreeable direction, then you might inquire if there’s another department you could speak to or any other supervisor who might be able to provide further assistance. It might be a while after being transferred from one department to another you finally reach someone who has authority to negotiate.
Don’t forget to get the agreement in Writing
Irrespective of the outcome you reach, whether a less or a more favorable one, make sure you get it in writing and strive to stick to your payment plan. If you’re in still worse financial trouble, get in touch with your creditor so you may renegotiate before falling behind. If you wait too long and eventually default on the settlement payments, the creditor may be very unwilling to renegotiate with you.
Seek still further help!
If you find your credit card company isn’t helping you enough, you might consider getting help from outside sources, which include:
- Credit Card Counselors : Go for the non-profit agencies that readily provide free or very low cost services. There is no shortage of scams, without doubt, so carefully assess which companies to use and get a clear understanding of which options to avoid for example debt management firms and variety of debt settlement companies.
- Bankruptcy Attorneys : A Chapter 13 bankruptcy allows you to keep your property intact while paying off all or part of your debt over a period of three to five years, mostly when the creditor doesn’t agree. Furthermore, by filing for Chapter 7 bankruptcy, many debtors can safeguard themselves against losing property of any proportion and discharge their credit card debt.