Credit cards are a part of everyday life for many, especially when shopping online. But they can also be an expensive way to borrow money, even when you are making your minimum repayments. And more so when you can’t make your repayments.
Whether you’re having trouble making repayments or are in arrears (debt), the worst thing is to ignore the problem hoping it might go away.
If you fall behind on repayments, don’t worry, there are things you can do to get back on track such as asking your credit card company for a repayment plan.
Which debts should I pay first?
How you deal with credit card debt depends on what you can afford to pay and what other debts you are dealing with. If you have other debts that can lead to being evicted or getting a court fine, deal with them first. They’re called priority debts and include things like rent, mortgage payments and gas and electricity bills.
How can I pay off my credit card debt?
If you are dealing with a single credit card debt and can afford to make some payments, there are many different things you can do to pay off your credit card. The top 4 things to remember are:
Pay it back gradually
Try to pay at least the minimum payment if you can. If you don’t, the company will charge a fee on top of interest, your debt will increase and your credit rating might get worse. Pay something rather than nothing.
Pay a bit more than the minimum if you can. This means you’ll clear the debt sooner and pay less interest overall. Use this clearing your credit card calculator to see how paying more than the minimum will help you pay off your debt faster.
Plan your spending
Make a budget plan. You need to know how much you can afford to pay off your debt. Use our free My Budget tool to help you. You may have to get used to not using the card and making payments. So be prepared to make some cutbacks for a while as you take back financial control.
Set up a direct debit so you don’t miss payments or pay later than the due date. This will stop you from being charged late payment fees.
Check if you’re paying for payment protection insurance (PPI). Decide if you need this and if it is worth the amount you are paying for it.
Change how you use your credit card
Stop using your card. Don’t buy anything more on your credit card if you can avoid it. This will mean you can clear the debt sooner.
Don’t withdraw cash with your card. The interest can cost more and you’ll have to pay a cash advance fee.
Lower the credit limit. Set the amount to a level you can afford. This helps you to stop building up debts you can’t repay.
Think about using a debit card instead of a credit card. Or, you could get a prepaid card that you can use wherever a credit card is accepted.
Pick a credit card with online access. This helps you to keep an eye on how much you are spending.
Ask your credit card company to reduce the interest rate on your card (see below). This will reduce the amount of interest added to your credit card debt each month.
Check if you can transfer your balance to a credit card with a lower interest rate, or 0% interest on balance transfers. This can sometimes help you to pay off your debt much quicker. Use this credit card comparison tool to see the different rates available at the moment. See ‘Should I switch to a different card to pay off my credit card bills’ below.
Still unsure what to do? We’re here to help. Talk to a MABS adviser who can help with your budget, give you advice on different solutions and help you take the first step to lowering your debts.
Ask your credit card company for a repayment plan
If you are unable to bring down the debt through increased repayments, you can ask your credit card company for a repayment plan. Your credit card company is likely to be helpful if you are open and honest with them.
When you talk to your card company, tell them:
- What’s happening (for example you lost your job or owe rent arrears)
- How much you can afford to pay each month
- You’d like to arrange a repayment plan
They may be willing to:
- Lower or pause your payments to see if your finances get better
- Pause or lower interest and other charges on your account
- Accept a lump sum payment to clear the debt
What if I can’t afford my repayments?
Having made this plan, you can then send a letter with a financial statement to your creditor explaining your situation. A financial statement is just a summary of your income, expenditure, debts and offers to pay. You can use our sample letter B to give the background to your situation.
Talking to your creditors can be very stressful, follow our tips for contacting your creditor for advice on how to do it.
When trying to make a new payment plan, don’t agree to pay more than you can afford. Your new payment plan will just break down. Use your financial statement to show you what you can afford.
You’ll need to start paying again when you have more money, for example when you’ve got a new job or paid off your rent arrears.
What happens if I miss payments and don’t contact my credit card company?
If you don’t pay the minimum payment, or contact them to arrange a payment plan, your account will go into arrears. If you are in arrears, 3 things can happen:
- Your lender will contact you and ask you to pay the missing payments.
- If you don’t make the payments, the account will ‘go into default’ (this means you are officially seen as in arrears).
- They’ll send you a default notice asking for payment.
In most cases, if they don’t hear from you after the default notice, they will pass your account to their arrears or legal department to start to recover the debt through the courts. If this happens, don’t worry, you can still work out a repayment plan. If you’re not sure how to go about this, contact MABS for help.
If you have several debts, you can follow our 5-step tackling debt plan. There are also formal debt solutions under personal insolvency that may be suitable for you. Help is available from MABS advisers every step of the way if you get stuck or need some advice.
The credit card company must follow the rules that protect you
If you go into arrears on your credit card, there are rules that the credit card company must follow. They must try to agree an approach that will help you to deal with your arrears. These rules are in the Central Bank of Ireland’s Consumer Protection Code (Chapter 8 Arrears Handling).
Should I switch to a different card to pay off my credit card bills (balance transfer)?
A balance transfer is when you repay existing debt with a new credit card. This moves your balance to a new card. You could save money by paying less interest on your existing debt.
Use this free calculator to see how long it will take to clear your debt with your current card. Then, compare that with how long it would take if you switched to a different card.
Remember to check:
- How much you’re being charged to transfer your balance
- If your interest rate will increase after a certain time
Talk to your credit card company or check their website. You might be able to do this online.
Does credit card debt affect my ability to take out loans (credit score)?
Yes, it can. Your credit card company shares information on how you use your card with the Central Credit Register and the Irish Credit Bureau (ICB.) The ICB uses a credit scoring system, but the Central Credit Register does not. Other creditors will use your credit history to decide how risky it is to lend you money if you decide to apply for credit again.
Need some advice and support?
If you decide to contact MABS, it would be useful to note all your questions and have your most recent letters, emails or court documents from your creditors to hand and any credit agreements (contracts) if you can find them.
You can also arrange to email either My Full Financial Picture or financial statement for a MABS Adviser to look at before your appointment if you wish. But even if you don’t have this information, still make the call and MABS will help.