Spending with a credit card isn’t anything out of the ordinary. They’re a very popular way to buy items and pay for them at a later date.
If you use them sensibly, then they can be a real benefit to your life. If not, they can very easily spiral into a very expensive form of borrowing.
In this article, we’ll examine credit cards, including the different types of credit cards available, how people fall into debt with their credit cards, and advice on how you can deal with credit card companies and handle your credit card debt.
What is a credit card?
A credit card is a financial tool that allows individuals to make purchases and borrow money up to a predetermined credit limit.
It is issued by banks, financial institutions, or credit card companies. When using a credit card, you are essentially borrowing funds from the card issuer to pay for goods, services, or bills.
Credit cards typically come with an interest rate, known as the annual percentage rate (APR).
The average interest rate varies among different credit cards and can range from relatively low to high, depending on factors such as the cardholder’s creditworthiness and the type of credit card.
When using a credit card, you are required to make monthly payments to the credit card issuer.
The minimum payment amount is typically a small percentage of the outstanding balance, which must be paid by a specified due date each month. However, making only minimum payments can result in accumulating interest charges over time.
Most credit card providers offer a wide range of credit card options, each with its own features, rewards, fees, and terms.
What are the different types of credit cards?
Many people think that there’s only one type of credit card, but there are quite a few types available.
As such, it’s important to know the differences between them so that you have all the relevant information to avoid falling into credit card debt.
This type of card is designed to help people to spread the cost of a larger purchase. Many of them have an interest-free period of time, usually in the beginning, which can make them one of the cheaper kinds of credit cards.
You need a good credit score to qualify for a purchase card and you’ll need to keep up with the minimum payments to keep the 0% interest rate.
With this type of card, it’s always best to try and pay back the balance before the end of this time.
Reward cards are exactly as they sound – you get rewarded when you use it.
These vary from card to card and you may get things like cashback, discounts or even travel miles.
However, these often come with high-interest rates and an annual fee that you must pay.
If you’re thinking about going for this type of card, make sure the rewards outweigh these things before applying.
Balance transfer cards
This type of card is normally useful if you already have a credit card. It allows you to transfer an existing credit card balance to the transfer one, which can often reduce how much interest you’re paying.
You may need to pay a small fee to do this, although many of them offer a low rate or 0% interest period for a set amount of time.
Combined balance transfer and purchase cards
These cards give the benefits of both balance transfer and purchase cards in one, which allows you to spread the cost of a larger purchase and reduce interest levels at the same time.
However, this card often comes with fees and you aren’t always likely to be offered an interest-free purchase period.
Credit building cards
If your credit score is leaning towards the lower side of the scale, then this type of card may be of use to you as they usually come with low limits.
They do, however, more often than not come with very high-interest rates. This is because you will be considered a higher risk due to your low credit score.
How do you pay credit card providers?
Navigating credit card payments is an essential aspect of maintaining a healthy financial life. By understanding the step-by-step process for paying credit card bills, you can effectively manage your debts and stay on top of your financial obligations.
Review your credit card statement
Regularly review your credit card statement to understand the outstanding balance, minimum payment due, and any additional charges or fees.
Take note of any discrepancies or unfamiliar transactions that may require further investigation.
This review will provide you with a clear understanding of your financial obligations.
Set a payment due date reminder
To avoid missing payment deadlines, set up reminders or alerts for the payment due date of each credit card. Use tools such as mobile phone reminders, calendar notifications, or banking app alerts.
This ensures that you stay aware of upcoming payments and helps you avoid late fees or potential negative impacts on your credit score.
Determine the amount to pay
When deciding on the payment amount, aim to pay more than the minimum payment if possible.
Paying only the minimum amount will result in longer repayment periods and higher interest charges.
Evaluate your budget and allocate a specific amount towards your credit card payments to reduce the outstanding balance efficiently.
Choose a secure payment method
Select a secure and convenient payment method that works best for you. Most credit card issuers provide various options such as online banking, mobile apps, automatic payments, or mailing a check.
Choose the method that suits your preferences in terms of reliability and ease of use. Ensure that the chosen payment method protects your personal and financial information.
Make the payment and verify its successful processing
Initiate the payment according to the chosen payment method. If making an online payment, log in to your banking or credit card account, enter the payment details accurately, and confirm the transaction. Double-check the payment amount, recipient information, and any verification codes.
After making the payment, verify its successful processing by checking your credit card statement or online account to ensure that the payment reflects and reduces your outstanding balance accordingly.
What happens if I go over my credit limit?
Going over your credit limit on a credit card can lead to various consequences. Firstly, you may incur over-limit fees imposed by the credit card issuer.
Additionally, your credit privileges could be temporarily suspended, hindering your ability to make new purchases or cash advances.
Going over the limit may trigger higher interest rates, increasing the cost of carrying a balance.
It can also negatively impact your credit score, affecting future credit access and potentially leading to higher interest rates on loans.
To avoid these issues, closely monitor your spending and credit card balance, and consider setting up a direct debit to ensure timely payments and avoid exceeding your credit limit.
Will credit card debts affect my credit rating?
The more payments you miss on your credit card, the more likely your credit rating is to be affected.
Every late payment you make is noted on your credit file, which is visible to lenders when you apply for credit.
As such, if you have defaults showing, your score will go down. Lenders will see you as high-risk when checking how reliable you are at paying back borrowed money.
It’s important to avoid this as having a good credit rating is essential to your financial life.
A lower credit score often translates into higher interest rates and charges, or could even result in you being declined for things such as a mortgage or personal loan.
What can I do to deal with my credit card debt?
Here are five steps you can take if you’re struggling to manage your credit card bills:
Contact the credit card company
Reach out to your credit card company to discuss your situation. Inform them about your struggle with debt and inquire about potential options available to you.
They may offer repayment plans, reduced interest rates, a lower minimum repayment, or other assistance programs to help you manage your debt more effectively.
Assess your financial situation
Take a comprehensive look at your overall financial situation. Evaluate your income, expenses, and debt obligations.
Create a budget to better understand where your money is going and identify areas where you can cut back on expenses to allocate more towards paying off your credit card debt.
Develop a monthly payment plan for outstanding debt
Create a repayment strategy to tackle your credit card debt systematically.
Consider using either the avalanche method (paying off high-interest debt first) or the snowball method (paying off small debts first for motivation).
Prioritise making consistent payments above the minimum amount due to reduce the overall interest accrued.
Explore balance transfer or consolidation options
Consider transferring your credit card balances to a card with a lower interest rate or exploring debt consolidation loans.
These options can help streamline your payments and potentially save on interest charges, making it easier to pay off your debt more efficiently.
What if a debt collection agency contacts me about credit card debt?
If a debt collection agency contacts you regarding your credit card debt, it’s important to handle the situation in a responsible and informed manner. Below are some steps you can take.
Validate the debt
Request a full breakdown of the debt, including the original amount, any interest or fees added, and the dates of transactions.
Verify the accuracy of the debt by comparing it to your records and statements.
If you believe there are errors or discrepancies, you have the right to dispute the debt and request appropriate investigations.
Negotiate a repayment plan
If you acknowledge the debt and are in a position to make payments, consider negotiating a repayment plan with the debt collection agency.
Assess your financial capabilities and propose a realistic payment schedule that you can afford.
It’s important to ensure that the agreed-upon terms are feasible for you to avoid further financial strain.
Seek professional debt advice if needed
If you are unsure about your rights, unable to negotiate a repayment plan, or facing complex debt issues, consider seeking professional debt advice.
Debt advice agencies or debt management companies can provide expert guidance, assist in negotiations, and offer a debt solution or debt management strategy to help you navigate the situation effectively.
Where can I get advice on dealing with credit cards and other debts?
Dealing with debt problems can be challenging. Discussing financial difficulties is never easy, particularly when you’re unsure about finding solutions.
Fortunately, there are effective debt management strategies that can help you on your way towards a debt-free future. At Talk About Debt, our goal is to provide you with the necessary knowledge and guidance you need to navigate your debt problems.
For expert debt advice and practical solutions, reach out to us today.