How to deal with credit card debt as rates reach 27-year high

Credit cards are the most common form of unsecured debt among Money Wellness customers. In June, the people we spoke to owed an average of £3,270.

But Bank of England figures show that credit card customers who don’t pay their balance off in full each month are likely to be paying the highest rates of interest seen in over 27 years.

The average rate in June was 23.1%, compared to 21.43% 12 months earlier.

How people in different situations should deal with credit card debt

The best way to tackle credit card debt will depend on your personal situation. Things like your credit rating and how much disposable income you have will affect the options open to you. Here are six ways to deal with credit card debt for people in different situations.

People with a good credit rating

If you have a good credit rating, there are a few options open to you that could help you cut the amount of interest you pay on your credit card debt.

Take advantage of a 0% balance transfer credit card

If you’re shelling out for interest on credit card debt, see if you can get a 0% balance transfer deal.

These offers let you freeze interest for up to 30 months. This should let you reduce your debt faster, as all your payments will go towards the debt, and nothing will be spent on interest.

For this option to be worthwhile, you’ll need enough time to clear your debt in full and at a price that makes sense. There will usually be a balance transfer fee of up to 5% to pay. See the Which? guide on the best deals around.

Look for a low-interest credit card

If you’re unlikely to pay off the full amount you owe before the end of a 0% balance transfer deal, a low-interest credit card may be a better option for you.

A low-interest credit card offers a relatively low interest rate on purchases and/or balance transfers for as long as you keep the card. You can get deals that charge as little as 10.9% APR.

With these cards, there’s no need to switch because an introductory offer has ended. This can make it easier to budget. Check out the Which? guide to the best low-interest credit cards.

People with multiple cards

If you have more than one credit card, you may be making similar payments towards them all. But this isn’t necessarily the best strategy.

Deal with the costliest card first

If you have more than one credit card, you can reduce the amount of interest you pay by clearing the most expensive debt first. For example, if you have a card charging 21% APR and eight months left of a 0% deal on another, start by paying off the one that’s hammering you with interest charges.

People who can afford to make cutbacks elsewhere

If you’re in a position to cut your spending in other areas, it may be a good idea to do this until your credit card debt is paid off.

Increase your payments

By making cutbacks elsewhere, you’ll be able to up your monthly credit card repayments. Paying as much as you can rather than just the minimum amount will help you pay off your credit card debt sooner and reduce the total amount of interest you’re charged.

People with a poor credit history and very little disposable income

If you have a poor credit history and no - or very little - disposable income, you’re unlikely to be able to get a 0% balance transfer deal or a low-interest credit card. You’re also likely to find it difficult to increase your monthly repayments. If you’re in this situation, it’s time to get help.

See if your provider can offer help

Lenders have a responsibility to help customers who have been struggling with continuous debt for some time. After 18 months, they must warn customers that they may not be managing their money in the best way.

After another 18 months, credit card providers are required to offer customers a way of repaying their balance in a reasonable amount of time. They may do this by reducing or freezing interest and/or charges.

It’s important to remember that if you contact your provider, they may decide to stop you from borrowing any more on your credit card.

Get debt advice

If you’re struggling with your credit card repayments, it’s a good idea to get debt advice before your situation gets worse. We can help you with budgeting, making sure you’re claiming all the benefits you’re entitled to and advising you on the different debt solutions that are available. You may be surprised at the range of help that’s on offer for people struggling with debt.