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Our first post in this months blog series on debt post-Christmas we have the lovely Sara Williams. Sara is a debt adviser who writes about debt and credit ratings on her personal blog, Debt Camel so if you do need any guidance or help on debt then this is your lady!
Why you should never borrow more to pay a credit card bill
January 2019 will be very difficult for millions of families in Britain. You may have been paid earlier in December than normal, so the money has to last longer, but then the catalogue and credit card bills start to arrive.
If you realise you can’t pay the minimums to your cards and loans this month, this may feel like a disaster.
It’s obviously not good, but don’t get panicked into doing something silly. The worst thing you can do is rush into signing up to an IVA – that’s a sort of insolvency like going bankrupt. It is being mis-sold to far too many people as the IVA firms make big fees from setting them up.
But the next worst thing is much less dramatic and may even feel sensible… it isn’t.
What you should NEVER do to pay off your credit card bill
“Rob Peter to pay Paul!”
Have you heard of this? It means you shouldn’t get deeper into debt in one place to repay another debt.
It’s folly to take out expensive debt such as a payday loan or borrowing from Provident. The interest rates are even higher than on your credit card or catalogue. It may let you pay January’s bills, but February is going to look a lot worse.
Guarantor loans are even worse than payday loan. Their interest rates may look a bit more reasonable but they can quickly be unaffordable as the loans go on for a long time. Then you are trapped, unable to look at sensible debt solutions because you would harm your guarantor. Avoid at all costs!
Even another credit card isn’t a good option as it makes the next month harder.
What about a cheap loan?
If you have a good credit score and not too much debt, there are some good unsecured loans on offer from the major banks in 2019.
Anything under 7% looks like a big improvement on those credit card and catalogue rates. Sometimes this refinancing works well but you have to be determined or it can be a disaster. You need to close all your card and catalogue accounts apart from one and resolve not to use that for anything unless you can repay it in full at the end of the month.
Too many people keep accounts open “just in case”. But there is always the temptation to spend on them. If you do this, come January 2020 you will have high card bills arriving every month and you also have the loan repayments for years.
Or 0% offers?
0% balance transfer offers are a great way to reduce the interest you pay. But the minimum payments on these cards are often much the same as on your current cards, so although one will save interest (good!) it won’t cut the amount you have to pay each month.
Don’t drift into more debt!
If you have remaining credit on a card and your overdraft, you may not realise until the end of the month that you only paid the high credit card bill by paying for food, or utility bills on other credit.
Do it once and it’s not a huge problem. But if it happens a few times, soon you will be running out of credit and your underlying debts have gone up, not down. So keep an eye out for this.
Your better choices
Rather than carry on getting deeper into debt, it’s better to take positive action. If you have just overdone Xmas a bit, have a very cheap January. Check out all the different ways to reduce your food bills. Decide on no new clothes for adults for 6 months. Take 20 minutes to switch your gas and electric to a cheaper supplier etc.
If your situation is worse than that, call up the creditors and ask for an affordable payment arrangement with interest frozen. If this feels too scary, talk to a good debt adviser. Your local Citizens Advice can help or ring National Debtline if you would prefer to use the phone.
Big thanks to Sara for providing this extremely relevant and informative post for our post-Christmas debt series. I have no doubt it would’ve been of massive help to anyone who is maybe a little worried on how they are going to get through January after overspending during the festive period & December.
Thanks again Sara!
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