How To Avoid Getting Into Credit Card Debt
In the UK, the rates of interest charged on a particular credit card are not always the same - Different ways in which cards are used can result in a variety of charges being made.
If a card issuer manages payments on a negative hierarchy basis, any money which is paid into the account will be assigned to the debt with the lowest interest rate, while more expensive payments will be left alone to build up higher interest charges until the lower-cost debts have been totally cleared.
Many credit cards will have a range of uses, which come with a range of interest rates. For example, shop purchases may have one rate, cash withdrawals another, and cheques another again. This will all be laid out in your terms of service, and it is important to understand what level of interest you will be paying for various actions before you start using your card. Here are some simple steps you can take to keep your interest rates down, and thus avoid getting into a cycle of credit card debt:
- Don't use a credit card to withdraw cash from a cash machine.
- Don't use credit card cheques to 'borrow' money from a card account.
- Find a credit card that operates a positive order of payments.
The UK government is researching ways in which credit card companies can be more transparent with their customers, and a major part of this includes the way payments are allocated. Since this process started, card companies have begun to change industry practice. In the future, this may ensure that all payments made over the minimum payment amount would be allocated to the most expensive debt. However, would still leave credit card companies able to use the minimum payment in a negative order. It is always worth being aware of the ways in which you will be charged for using your card, so that you can prioritise how you pay back credit and avoid negative debt cycles.
- If you feel you are in a situation where you need to talk to someone about your debt problems, speak to a debt charity who will be able to offer free help, counselling and in some cases debt management plans.
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